California's SB 525 Health Care Minimum Wage: July 2026 Rates, Tiers, and the Exempt-Salary Trap

If you run payroll for a California hospital, clinic, or skilled nursing facility, July 1 just quietly reset your labor budget. Under SB 525, the state's tiered health care worker minimum wage law, a fresh round of increases took effect — and depending on which tier your facility falls into, that could mean an hourly floor of $22, $23, or $25, regardless of what California's general minimum wage says. If your finance team is still budgeting off last year's numbers, you're already behind.

SB 525 doesn't work like a normal minimum wage law. It doesn't apply one number to every employer statewide. Instead, it splits health care facilities into tiers based on size, patient mix, and ownership, and marches each tier toward $25 an hour on its own separate schedule. That structure is exactly why so many finance and HR teams get caught flat-footed: the rate that applies to the hospital across town may not be the rate that applies to you.

Who SB 525 Actually Covers​

The law's reach is broader than most administrators expect. It applies to any employee of a covered health care facility who provides "patient care, health care services, or services supporting the provision of health care" — which sweeps in far more than clinical staff. Nurses and physicians are covered, but so are:

• Janitorial and housekeeping staff
• Food service and dietary workers
• Laundry employees
• Clerical and administrative staff
• Security and groundskeeping personnel who work at a covered facility

Job title doesn't determine coverage — the nature of the facility does. If your organization operates a hospital, skilled nursing facility, dialysis clinic, community or rural health clinic, or a physician group of a certain size, most of your non-exempt workforce is likely covered, not just the clinical roles.

One notable carve-out: physician groups with 24 or fewer physicians are exempt from SB 525 entirely. If you're a small independent practice under that threshold, this law doesn't apply to you — though it's worth revisiting that headcount annually, since crossing it mid-year triggers coverage.

The July 1, 2026 Rates, By Tier​

As of July 1, 2026, three effective wage floors are in play:

$25 per hour — the top tier, covering:

• Large hospital systems with 10,000 or more full-time-equivalent employees (and their affiliated skilled nursing facilities)
• Dialysis clinics
• Health care facilities operated by large counties (populations over 5 million — effectively Los Angeles County)

$23 per hour — the broadest tier, covering most other licensed health care facility employers not otherwise listed, including physician groups with 25 or more physicians and (per the statute's schedule) skilled nursing facilities not affiliated with a Tier 1 system.

$22 per hour — community clinics, rural health clinics, intermittent clinics, and affiliated urgent care clinics.

These aren't flat rates locked in forever — SB 525 is a multi-year phase-in. The $23 and $22 tiers are still climbing toward the same $25 ceiling the top tier already hit; expect another scheduled step-up before the law's implementation fully levels out. Budget for the trajectory, not just this year's number.

For context, California's general state minimum wage rose to $16.90 an hour on January 1, 2026. Even the lowest SB 525 tier sits more than $5 above that statewide floor — a gap finance teams at multi-site organizations (say, a hospital system that also runs a community clinic division) need to model separately, tier by tier, rather than applying one blended labor rate across the whole operation.

The Exempt-Employee Trap Almost Nobody Budgets For​

Here's the part that catches even experienced HR and payroll teams off guard: SB 525 doesn't just move the floor for hourly workers. It also resets the minimum salary threshold for exempt employees at covered facilities.

Under California law, exempt salaried employees at SB 525-covered facilities must earn the greater of:

1. 150% of the applicable health care worker minimum wage, multiplied by 2,080 annual hours, or
2. 200% of the general California minimum wage

Run that formula against the July 1, 2026 tiers and the thresholds look like this:

• $25/hour facilities: exempt salary floor of $78,000/year
• $23/hour facilities: exempt salary floor of $71,760/year
• $22/hour facilities: roughly $68,640/year by the formula, though the statewide $70,304 general exempt floor still sets the practical minimum

If a nurse practitioner, PA, department supervisor, or administrator at your facility is classified exempt and earning below the applicable threshold, you have two options: raise the salary to meet the new floor, or reclassify the position as non-exempt and start tracking hours and overtime. Neither is a decision to make in the payroll run the week the increase hits — both have budget and workforce-planning implications that need to be modeled months in advance.

Building the Budget: A Practical Approach​

Because SB 525 assigns different rates to different facility types — and because a single health system can operate facilities that fall into more than one tier — the budgeting exercise isn't "look up the new minimum wage and multiply." It's a facility-by-facility, and sometimes department-by-department, reconciliation.

1. Map every facility to its correct tier. Don't assume a system-wide rate. A hospital system that also runs a satellite community clinic may be paying $25/hour at the main campus and $22/hour at the clinic — confirm each site's classification independently, and re-confirm annually since thresholds like FTE count and patient-mix percentages can shift a facility between tiers.
2. Segment your labor cost model by job classification, not just department. Because coverage sweeps in janitorial, food service, and clerical roles alongside clinical staff, your budget needs to reflect wage floor changes across every affected cost center — not just nursing and physician compensation, which is where most administrators' attention naturally goes first.
3. Run the exempt-threshold math for every salaried position at a covered facility, not just the ones you suspect are close to the line. A department supervisor whose salary looked comfortably exempt under last year's threshold can fall below this year's floor without anyone having flagged it.
4. Post the required notice. Covered facilities must display a supplemental minimum wage notice alongside the standard state minimum wage posting — a small compliance step, but one auditors and labor investigators check first.
5. Build the multi-year trajectory into your forecast, not just the current rate. Since the lower tiers are still phasing up toward $25, a labor budget built only around today's number will need revision again well before the next fiscal year closes.

Why This Belongs on Your Books, Not Just in HR's Inbox​

Wage-tier compliance is ultimately a bookkeeping and forecasting problem as much as an HR one. Getting the classification wrong — misjudging which tier a facility falls into, missing an exempt reclassification, or blending labor rates across sites that should be tracked separately — shows up first as a payroll expense variance nobody can explain at month-end close. Clean, facility-level cost tracking from day one is what lets finance teams catch a tier misclassification before it becomes a wage-and-hour liability instead of a rounding error.

Keep Your Payroll Numbers Auditable​

Multi-tier wage compliance like SB 525 is exactly the kind of complexity that punishes messy books — when a labor cost overrun surfaces months later, you need a financial record detailed and version-controlled enough to trace it back to the facility, department, and pay period where it started. Beancount.io offers plain-text accounting that gives healthcare finance teams a fully auditable, transparent ledger with no black boxes and no vendor lock-in. Get started for free and keep your payroll budgeting as precise as the compliance rules demand.