The state is facing a $19 billion deficit and the budget deadline passed two weeks ago.
Under Schwarzenegger's plan, workers will receive full back pay once the budget impasse is over.
The federal minimum wage is $7.25 per hour.
In a statement, the governor said Friday: "This underscores the fact that everyone loses when we have a budget impasse. Every day the legislature fails to deliver a budget costs the state $50 million."
Some local state workers are scared and outraged.
At the California Department of Motor Vehicles Office in Redlands, most customers were fairly upbeat Friday, because the office is once again open on Fridays and the lines weren't too long.
But DMV employees, on the other hand, didn't have much to smile about, considering the governor wants to cut pay to state employees back to federal minimum wage until the state legislature comes up with a budget.
"I've never been worried like I am now," said one DMV employee Pamela Ianniccari. She's worked at the DMV for 27 years. She's only six years away from having her house completely paid off. Now, she might have to sell it.
"I have a disabled husband at home. I have a disabled son still living at home," said Ianniccari. "And even if I didn't, I mean, there's people losing their houses already with what's already happened. Even the furloughs was a bite."
Yolanda Jimenez-Stokes has worked at the DMV for more than a decade. "When I got hired, everybody said, 'Get hired with the state. Get hired with the state. It's the best job, medical, retirement,'" said Jimenez-Stokes. "Now, he's dipping into our retirement, he's taking our pay, he's taking our holidays. He's taking everything."
"Well sir, I think he should try to work for $7.25 an hour, see if he can pay his bills," said DMV employee Robert Lapierre.
State Controller Chiang says he's going to ignore the governor's order because he's not sure if it's legal. So until there's a final court ruling, state workers probably won't have their wages dropped.