Earlier this year, Governor Jerry Brown signed into law Senate Bill 3 by State Senator Mark Leno (D-San Francisco). The bill is now Chapter 4 and it amends Sections 245.5, 246 and 1182.12 of the Labor Code. As a result of the enactment of this bill, California’s minimum wage is going up on January 1, 2017 as it eventually makes its way to $15 per hour.
Under existing state law, the minimum wage for all industries increased to $10 per hour on January 1, 2016. Under SB 3, the minimum wage for all industries will be increased to $15 per hour from January 1, 2017 to January 1, 2022 for businesses employing 26 or more employees and from January 1, 2018 to January 1, 2023 for businesses employing 25 or fewer employees.
The law does provide that the scheduled increases may be temporarily suspended by the Governor based upon him making certain determinations. Additionally, the law requires the Director of Finance, after the last scheduled minimum wage increase, to annually adjust the minimum wage under a specified formula. In the meantime, the wage will go up incrementally each year.
The following are the scheduled increases for any business that employs 26 or more employees:
* On January 1, 2017 to $10.50 per hour
* On January 1, 2018 to $11 per hour
* On January 1, 2019 to $12 per hour
* On January 1, 2020 to $13 per hour
* On January 1, 2021 to $14 per hour
* On January 1, 2022 and until adjusted by the formula, to $15 per hour
The following are the scheduled increases for any business that employs 25 or fewer employees:
* On January 1, 2018 to $10.50 per hour
* On January 1, 2019 to $11 per hour
* On January 1, 2020 to $12 per hour
* On January 1, 2021 to $13 per hour
* On January 1, 2022 to $14 per hour
* On January 1, 2023 and until adjusted by the formula, to $15 per hour
SB 3 was passed over the strenuous objections of the state’s business community. The bill was labeled a “Job Killer” by the California Chamber of Commerce “Job Killer” and the bill was enacted shortly after California’s minimum wage was increased by another dollar to $10. An earlier version of SB 3 had proposed to increase the minimum wage to $13 an hour by 2017 and, thereafter, increase the wage according to the rate of inflation. It was amended to eventually raise the state minimum wage to $15 with likely annually increases thereafter.
Unfortunately, SB 3’s mandate will simply overwhelm many businesses that are already struggling with the current minimum wage increases and the myriad of other, cumulative costs imposed upon them for doing business in California. Employers in this state continue to face significant costs including increased personal income and sales taxes under Proposition 30 (and potentially another 12 years if the voters adopt Prop. 55 in November), higher workers’ compensation premiums, continued reduction in the federal unemployment insurance credit, higher energy costs, and increased costs due to the implementation of the Affordable Healthcare Act. And those are the costs we know of today.
In February 2014, the Congressional Budget Office (CBO) issued a report regarding the impact of the proposal to raise the federal minimum wage to $10.10 an hour. The conclusion was that, although some low-wage workers would receive a higher income through the increased minimum wage hike, “some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed, would probably fall slightly.”
To make matters worse, these scheduled increases in the state’s minimum wage not only increase hourly employees’ wages, but also salaried employees’ compensation. In order for employees to qualify as “exempt” under any of the six exemptions in California, they must meet the salary-basis test, which is two times the monthly minimum wage. With the enactment of SB 3, there will be an increase of over $15,000 per exempt employee in just a few years. And businesses will also see their workers’ compensation premiums go up, as well as increased costs for uniform/tool reimbursements and overtime.
Finally, the business community had argued that SB 3 should contain a regional minimum wage, but this proposal was rejected. While some can appreciate that certain cities and counties in California may be able to afford an increased minimum wage, other cities and counties are still struggling with an unemployment rate in excess of 10%. Employers in these areas will find it much more difficult to sustain such a dramatic increase in their labor costs.
Chris Micheli is a legislative advocate with the Sacramento governmental relations firm of Aprea & Micheli, Inc.