A deal to raise the California minimum wage to $15 an hour by 2022 was reached Monday, by Gov. Jerry Brown and state legislators. Making California the first state in the nation to lift base earnings and drive a campaign to raise the pay floor nationally.
This increase will boost the wages of about 6.5 million California residents, or 43% of the U.S. workforce, who earn less than $15, according to workers group Fight for $15. NELP stated that more than a dozen other states, cities and counties passed a phased-in $15 pay floors within five years, including Los Angeles.
Under California’s plan, its minimum wage, currently the highest in the nation at $10 an hour, would rise to $10.50 in 2017, $11 in 2018 and a dollar each year through 2022. Now nearly two dozen companies and schools have established $15 minimums this year, including Facebook, Google, Nationwide Insurance and the University of California. Other companies will be phased in with the coming years.
Although this a great victory for low wage workers the fact of the matter is that the vast majority of people earning minimum wage or below aren’t working at large corporations. According to Mr. Saltsman, research director at the Employment Policies Institute, roughly half the minimum-wage is employed at businesses with fewer than 100 employees, and 40% are at very small businesses with fewer than 50 employees.
Some of these businesses are small diners or independent grocery stores; others are franchisees that own a handful of stores affiliated with a recognizable brand. The increase of minimum wage will have a domino effect on how small businesses run their operations. State-level increases will force some businesses to replace workers with technology or even shut down in the face of rising costs.
The size of these increases is directly relevant to the revaluation of possible channels of adjustments for small business owners. Employers can shift the composition toward higher skilled workers, cut pay to more highly paid workers, increase prices to consumers, reduce work hours, or simply accept a smaller profit margin. Employers could also possibly adjust their hiring requirements by “upgrading” the skill level of their workforce. Making it more difficult for the employment prospects of the less-educated and less-experienced workers.
More importantly, the California minimum wage will also impact exempt employees based on the current wage orders. Exempt employees are excluded from receiving overtime pay and are paid on a salary basis rather than the minimum wage. Under the Industrial Welfare Commission Order No. 17-2001, no person shall be exempt from overtime unless the person is primarily engaged in the duties which meet the test of the exemption and earns a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. The duties that meet the tests of the exemption are one of the following set of conditions:
(A) The employee is engaged in work which is primarily intellectual, managerial, or creative, and which requires exercise of discretion and independent judgment; or
(B) The employee is licensed or certified by the State of California and is engaged in the practice of one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting, or is engaged in an occupation commonly recognized as a learned or artistic profession; provided, however, that pharmacists employed to engage in the practice of pharmacy, and registered nurses employed to engage in the practice of nursing, shall not be considered exempt professional employees, nor shall they be considered exempt from coverage for the purposes of this subsection unless they individually meet the criteria established for exemption as executive or administrative employees.
(C) For the purposes of this section, “full-time employment” means employment in which an employee is employed for 40 hours per week.
(D) For the purposes of this section, “primarily” means more than one-half of the employee’s work time.
The impact on employers nationwide with salaried, exempt employees cannot be ignored. Since exempt employees in California must make at least twice the minimum wage on an annual basis, employers will be required to pay more per year to these employees. For example, at the current minimum wage of $10 an hour an exempt employee would earn $41,600 annually. Beginning January 1, 2017 it will increase to $43,680, by 2018 to $45,760 and by year 2022, at a $15 an hour rate, they will earn $62,400 a year.
The proposed rules could significantly impact employers and job seekers nationwide. But in the state of California it is still too early to tell if the $15 minimum wage increase will be bad news. This deal could wind up backfiring badly on California-based businesses and the states’ minimum-wage workers.