Department of Personnel Administration Director Debbie Endsley sent the order in a letter to the state controller, who refused a similar order two years ago. The matter is tied up in the appellate courts, leading the controller to say he will abide by whatever final ruling emerges, which could be years down the road. He said he can't follow the order now due to technical and legal issues.
Most state employees will be paid the federal minimum of $7.25 per hour for the July pay period.
Schwarzenegger spokesman Aaron McLear said the change should be reflected in state employees' next paycheck. Workers will be paid in full retroactively once a budget is passed.
"It's a sad day when the boss wants to make his employees collateral damage in a budget dispute," said Patty Velez, an environmental scientist and president of the California Association of Professional Scientists, a union that would be affected by the cuts.
The Republican governor has been frustrated by the Legislature's failure to close California's $19 billion budget deficit, even as the new fiscal year began Thursday.
Schwarzenegger's order does not affect the 37,000 workers, including California Highway Patrol officers, who are in unions that recently negotiated new contracts with the administration. Those contracts included pay cuts and pension reforms that will save the state money.
Asked whether the governor was sending a message to the unions that have not yet signed new contracts, McLear said no.
"We're sending a message to the controller to follow the law," he said.
Schwarzenegger made a similar order two years ago, but it never took affect because state Controller John Chiang refused to comply. The courts later sided with Schwarzenegger, but the matter is on appeal.
"It's inevitable that this is going to end up being ruled against the controller," McLear said.
Chiang, a Democrat, is an elected statewide officer. His deputy press secretary, Jacob Roper, said Thursday that the controller's office does not intend to follow Schwarzenegger's order, in part because the state's computerized payroll system cannot handle the change.
"This is uncharted waters here," Roper said. "No city, county or state has ever taken this action before."
In a statement, Chiang said it was not possible with the state's current technology to pay some employees their full salaries and others minimum wage. He also said his office and the governor's have been working on a system upgrade, but it will not be ready until October 2012.
Schwarzenegger's order, if implemented, could cost the state billions of dollars because the action would violate employment law, Roper said. He cited the federal Fair Labor Standards Act, which he says entitles a worker to "double damages" if an employer cuts pay to minimum wage.
Salaried managers who are not paid on an hourly basis would see their pay cut to $455 per week.
Some of the state's roughly 250,000 employees would be exempt, including doctors and attorneys, because minimum wage laws do not apply to those professions. Under the order, they would not get paid at all until a budget deal is struck, said Lynelle Jolley, spokeswoman for the Department of Personnel Administration.
"This all goes away if the Legislature passes a budget this month," she said.
Service Employees International Union 1000, the state's largest employee union, declined to comment because union lawyers are still reviewing the matter. The union, which represents about 95,000 state workers, joined Chiang in the legal challenge two years ago.
SEIU 1000 employees generally earn more than federal minimum wage, in part because California's state minimum wage of $8 an hour is higher.
