Mandatory Wage Increase for California Healthcare Workers

On October 13, 2023, California Governor Newsom signed into law SB 525 increasing the minimum wage for health care workers in California to $25.00 per hour. The new law represents the cumulation of yearslong efforts by labor unions and healthcare employers to negotiate a wage increase for nearly 455,000 workers across the state.

Background
Following the passage of several local laws raising the minimum wage for health care workers, the health care industry reacted by qualifying referendums to ask voters to block these increases. In response, the health care workers labor unions qualified a ballot initiative in Los Angeles County seeking to limit the maximum salaries for hospital executives. In an effort to find common ground, health care employers agreed to support SB 525, and the unions agreed to a 10-year moratorium on efforts to force pay raises at hospitals and other medical facilities through ballot initiatives. The new state law will effectively preempt those local minimum wage increases passed by any counties.

Despite this support, some had speculated that Governor Newsom would not sign SB 525 over concerns that the bill might impact the state’s budget by potentially increasing (in the billions) its reimbursement to healthcare providers under California’s Medicaid program. However, since almost half of low-wage health care workers and their families use these publicly funded programs, researchers at UC Berkeley and labor unions posited that the increase in wage and reimbursement rate would likely be offset by the savings that state would realize by certain healthcare workers no longer requiring the use of publicly funded programs.

Glide path to the new minimum wage
Under the new law, medical technicians, nursing assistants, custodians, and other support staff will see a gradual wage hike beginning next year; however, the rate of increase will depend on the type of health care facility in which they work. For example, some community clinics will be required to implement a $21 hourly minimum wage in 2024 and reach $25 by 2027, while dialysis clinics and large health systems with more than 10,000 workers will be required to increase the hourly minimum wage to $23 in 2024, $24 in 2025, and $25 in 2026. Hospitals with a high mix of Medi-Cal and Medicare patients, as well as rural independent hospitals, will be required to pay workers $18 per hour in 2024, with 3.5% annual increases until the minimum wage reaches $25 in 2033. Finally, other health care employers will be expected to step up their hourly minimum wage to $21 in 2024, $23 in 2026 and $25 by 2028.

It is important to highlight that the scheduled increases are not required to be proportional based on current worker wages. Therefore, more senior and experienced health care workers who currently receive an hourly wage close to the scheduled increase for 2024 could be making the same as entry level employees come next year.

From a practical perspective, all employers of health care workers in California will need to update their pay structures in order to comply with the law, based on the facility type. If you have questions about the new CA law or other healthcare law issues, please contact Michael Brown at [email protected] or 949-636-8128.

Michael Brown is a Partner with our California-based team, bringing over three decades of senior in-house counsel experience in the area of business, employment, healthcare, compliance, and privacy. Michael has served as in-house counsel to healthcare giants such as Tenet HealthSystems (hospitals), Apria Healthcare (Home medical equipment, respiratory and infusion therapy); Clarient, a GE Healthcare company (clinical laboratories); and Edwards Lifesciences (medical device) where he also was a member of the AdvaMed Diagnostic and Compliance Committee that revised the AdvaMed Code of Conduct for the medical device industry.