California employers are saddled with what some consider the most onerous labor law requirements in the nation. In addition, they are now subject to minimum wage laws that are already having a significant impact.
On January 1, 2017 the California minimum wage increased to $10.50 an hour on the heels of new legislation that is designed to usher in a minimum wage threshold of $15.00 an hour by the year 2022.
The California Department of Industrial Relations (DIR) made recent updates to most of its 17 Wage Orders, including the minimum wage order. The update shows the minimum wage for 2017 and 2018 as follows:
Effective Date More Than 25 Employees Less Than 26 Employees
January 1, 2017 $10.50 $10.00
January 1, 2018 $11.00 $10.50
While HR compliance is mandatory the potential consequences for failing to comply can be quite costly for employers unfortunate enough to have claims filed against them. However, the cost of minimum wage compliance for many employers may be enough to spur relocation out of the state or, in some cases, cause them to shut down completely.
For example, Houman Salem of ARGYLEHaus of Apparel in Los Angeles County, California, pointed out in an LA Times op-ed that he’s looking to Nevada for expansion because of California’s minimum wage:
“The biggest reason is the minimum wage, which will rise to $15 by 2021 in the county and by 2022 statewide. I write with some hesitancy, because I’m in no way an opponent of higher pay. When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.”
“When the $15 minimum wage is fully phased in, my company would be losing in excess of $200,000 a year (and far more if my workforce grows as anticipated). That may be a drop in the bucket for large corporations, but a small business cannot absorb such losses…”
Small Businesses Feeling the Brunt of Minimum Wage Increases
Lower income workers, for whom the mandatory wage increase was intended to benefit, often suffer as a consequence from unintended effects.
According to one study, when California implemented a 10-percent minimum-wage increase, there was a corresponding 1.2 percent decline in new low-wage workers. This seemed to indicate that while, existing workers kept their jobs and benefited from the increased pay, fewer minimum-wage jobs were being created or filled.
And for small business owners, the fiscal impact is also real and immediate.
Esha Chhabra , writing in Forbes, highlights this trend among smaller businesses in California:
Kelly Ulmer, owner of Almost Perfect Books in Roseville, California, had a business model that was employee-friendly, offering shares of all profits to the employees each week. “As the minimum wage increased, the profits decreased,” she says. “All of my employees actually made more money at $8 an hour than they do at $10 an hour because I had actual money to give them.”
In July 2016, she closed her store because of “the ever increasing minimum wage,” she says. She’s not alone. Nat Cutler, one of the owners of Abbot’s Cellar in San Francisco also had to close his doors when minimum wage went up -- along with other business costs in the city.
California has the largest restaurant industry in the country, and accounts for almost 4 percent of the United States’ total gross domestic product. In addition, the state also has one of the highest proportions of non-white restaurant workers with Latinos comprising over 50 percent of California’s restaurant workforce as recently as 2015.
In a recent article published in The Federalist, author Erielle Davidson notes that Harvard Business School had released a working paper titled “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit.” which addresses the effects of minimum wage policies on the survival of businesses:
The paper focused specifically upon the restaurant industry in San Francisco, using data from the review platform Yelp to track the activity and performance of individual restaurants. Researchers Dara Lee Luca and Michael Luca discovered that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of any given restaurant exiting the industry entirely. In economic terms, minimum wage hikes quicken a restaurant’s “shutdown” point.
Numbers of California Locales Increased Minimum Wage
At least 28 counties, cities, towns and municipalities in California have established their own minimum wage laws and ordinances since 2016. Along with these are the Jackson Rancheria Band of Miwok Indians Casino's and Resorts, which established their own minimum wage requirements.
A partial list of local minimum wage increases includes all of Los Angeles City and County, San Francisco, Oakland, Berkeley, Santa Clara, San Jose and Sacramento. Almost all of these cities, towns and counties are on similar tracks to eventually require at least $15 minimum wage rates. Many will be higher.
Compliance With Minimum Wage Requirements
New regulations often increase both the costs and the risks for employers, requiring new workplace postings or changes to existing workplace policies. It is recommended that all employers consult with experienced employment counsel to ensure compliance.
In addition, new management and compliance practices are required for every HR and every payroll professional. All of this can become burdensome and time consuming. But there are options.
Accuchex, a reputable payroll and workforce management services provider, can not only relieve you of the burden of your ongoing payroll process demands, but can potentially provide other cost-effective solutions, as well.
Call Accuchex Payroll and Workforce Management Services at 877-422-2824 to get your free Payroll Outsourcing Guide, or click the button below and let us help you learn more about your labor law compliance needs.