Minimum Wage Rises in California
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Minimum Wage Rises in California

By Toni Vranjes  7/16/2014
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Many store cashiers, restaurant employees and other low-wage workers in California just got a pay boost as a debate rages over just how high their pay should go.

On July 1, 2014, the minimum wage rose from $8 to $9 an hour. The increase is part of Assembly Bill (AB) 10, signed by Gov. Jerry Brown in September 2013. Under the law, the minimum wage will increase again to $10 in January 2016.

Legislators recently considered a proposal that would have gone even further. The California Senate in May approved Senate Bill (SB) 935, which would have pushed the minimum wage up to $13 by 2017, and afterwards would have required annual adjustments for inflation. In a surprise move, though, the bill died in an assembly committee in June.

For employers, the impact of such legislation goes beyond simply increasing the pay of low-wage workers. Laws raising the minimum wage also affect many other areas of California employment law, including salary requirements for exempt employees, split-shift pay and collective bargaining agreements.

There’s a lot of disagreement over whether minimum-wage hikes are a good idea. Interest groups and economists are split on the issue, and a recent report from the Congressional Budget Office (CBO) shows the issue is complex. The CBO study concluded that raising the federal minimum wage likely would have mixed results: higher incomes for many but also a reduction in overall employment.

Employer Compliance

Many areas of employment law are tied to the state minimum wage, said Douglas Farmer, an employment attorney at Ogletree Deakins in San Francisco. When the minimum wage rises, that increase potentially could throw businesses out of compliance in many other areas of the law, according to Farmer, author of California Employment Law: The Complete Survival Guide to Doing Business in California.

Employers should review all of these areas to ensure compliance. They include:

Salary Requirements for White Collar Exempt Employees: Those who fall within the “executive, administrative or professional” categories are exempt from certain requirements, such as overtime pay and meal periods, said Jones Day employment attorney Rick Bergstrom. To qualify for these exemptions, companies must pay a monthly salary equivalent to at least twice the state minimum wage for full-time employment, noted Bergstrom, who is based in San Diego.

Commissioned Salesperson Exemption: A worker who earns more than 1.5 times the state minimum wage, and who meets other criteria, is exempt from overtime requirements.

Split-Shift Payments: If an employee works two shifts during a workday—separated by an unpaid break that exceeds one hour—the worker usually must receive an extra hour of pay at state minimum wage.

Collective Bargaining Agreements: Under many wage orders, an employee covered by a valid collective bargaining agreement is exempt from California overtime pay provisions. These agreements must meet specific requirements, Farmer said. Among the requirements: the worker’s regular rate of pay must be at least 30 percent more than the state minimum wage, and the agreement must offer premium wage rates for all overtime hours worked.

Tools and Equipment: An employee who receives at least twice the state minimum wage may need to provide and maintain certain tools and equipment, said Irvine attorney Veronica Gray, chair of Nossaman LLP’s employment group.

Meal and Lodging Agreements: Employers may enter into voluntary agreements with employees to credit meals and lodging against the California minimum wage.

Nonproductive Time: Many employers have contractual provisions to pay workers less than the regular rate of pay for “nonproductive time,” according to Farmer. For instance, this could include business travel time. In these situations, employers must pay at least the minimum wage.

Workplace Posting: Employers must post information about the new minimum wage in conspicuous areas of the workplace, Gray said.

Meanwhile, a number of California cities have their own local minimum-wage ordinances, and affected businesses need to comply with those laws.

New Proposal Rejected

Despite the new pay increases for low-wage workers, some groups say that much more is needed.

These groups include the Women’s Foundation of California, along with the Service Employees International Union (SEIU) California State Council. The two groups sponsored SB 935, which would have boosted the minimum wage to $13 by 2017. Beginning in 2018, it would have automatically indexed the minimum wage to inflation.

Supporters of that bill say that AB 10 is a good first step, but it provides for less purchasing power than the 1968 minimum wage. They contend that new legislation is needed to fix this problem, so they were pushing hard for passage of SB 935.

The California Chamber of Commerce, along with the National Federation of Independent Business (NFIB), led the charge against SB 935. They asserted that it would have devastated the economy, leading to lost jobs and higher prices.

SB 935 gained the approval of the California Senate, but it later failed to pass the Assembly Committee on Labor and Employment. The bill’s rejection surprised many on both sides of the issue.

Among those abstaining were two Democrats: AB 10 author Luis Alejo of Salinas, along with Chris Holden of Pasadena. Alejo indicated that it was too soon after passage of his bill to consider this type of legislation.

“Ironically, it was the author of AB 10 that helped to kill the bill,” said Ken DeVore, legislative director for the California chapter of the NFIB.

According to critics of the bill, piling SB 935 on top of AB 10 would have crushed employers to pieces. When examining the combined effect, businesses would have faced annual cost increases of nearly $12,000 per full-time minimum-wage employee by 2017, as compared to the level in 2013, according to the NFIB. Higher costs ultimately are passed on to consumers, critics say.

In the view of the NFIB and the Chamber of Commerce, automatic annual indexing is unnecessary because California has a full-time legislature that can examine the issue every year.

The NFIB and the Chamber of Commerce also highlighted another concern: the cumulative impact of all the strict regulations faced by businesses. In a post, the Chamber of Commerce said that employers also are confronting higher costs from other sources, including Proposition 30, workers’ compensation rates and implementation of the Affordable Care Act.

DeVore noted that legislators keep pushing for more and more protected leaves of absence. California is the “most regulated state in the U.S. by a long shot,” he said.

But supporters say that high-quality research actually supports their arguments. In reality, SB 935 would have benefited the entire state, they contend.

“There is so much research that has documented the fact that when you increase the minimum wage, it has a positive impact on the economy,” said Judy Patrick, president and CEO of the Women’s Foundation.

According to supporters, it’s also a matter of justice. Two-thirds of all minimum-wage workers in California are women—and many are the sole source of support for their families, according to Patrick. She said that the number of single moms living in poverty is a major concern.

“We believe it’s a crisis, and it has a long-term impact on children in the state, and really on the state as a whole,” Patrick said.

Although the foundation is pursuing a noble goal, the minimum wage was never intended to be a “living wage,” according to DeVore. Rather, he said, it’s intended to be a starting wage.

Despite the opposition they’ve faced, advocates of the minimum-wage increase aren’t giving up.

Women’s Foundation spokeswoman Sande Smith said that the group’s supporters sent 1,500 letters to the Assembly Labor Committee, while members of the nonprofit group MomsRising sent 1,700 letters.

“People care about this issue,” Smith said in an e-mail. “So our goal is to review lessons learned and then get ready for another try next year.”

Research on Minimum Wage

Both supporters and opponents of SB 935 say that research backs up their positions.

When looking at the big picture, the impacts of raising the minimum wage are impressive, according to Jonathan Heller, co-director of the nonprofit research organization Human Impact Partners. The group conducted an in-depth analysis of SB 935, ultimately finding that it would have beneficial results.

“Many high-quality studies show that the net impact of minimum-wage increases is positive: Raising the minimum wage raises income for the lowest 25 percent or more of earners,” Heller said in an e-mail.

He added that there could be negative impacts for certain workers. For instance, some employers might cut back on staff or reduce future hiring, he observed. But even when those impacts are considered, “the overall effects are positive,” Heller emphasized.

Heller’s team relied mainly on a recent study by economist Arindrajit Dube, called “Minimum Wages and the Distribution of Family Incomes.” The research examined the relationship between family-income distribution for people under age 65 and changes since 1990 in the minimum wage. The study takes into account changes in employment and work hours, Heller said.

SB 935 would have affected people who currently earn the minimum wage, plus those who currently make slightly more than the minimum wage, he added. The bill would have boosted the family income of about 7.5 million people, according to his analysis.

The business community, though, insists that the bill would have been extremely harmful.

A study by the NFIB Research Foundation concluded that SB 935 would lead to 323,000 fewer jobs over a decade. According to the research, 57 percent of those jobs would have been at small businesses—defined as those with less than 500 employees. The study found that the bill would have a huge impact on two industries in particular: retail trade, and leisure and hospitality.

Many critics of minimum-wage hikes also highlight the research of economists David Neumark and William Wascher, who contend that minimum wage increases lead to fewer job opportunities, and also fail to reduce poverty.

As a group, economists are quite divided about the impact of a minimum-wage increase on employment, according to Tara Sinclair, an economics professor at George Washington University.

When comparing economists’ views in an Initiative on Global Markets Forum survey on the minimum wage to one on the gold standard, it’s apparent that they disagree dramatically about the effects of the minimum wage, she observed.

Regarding the Dube study on “Minimum Wages and the Distribution of Family Incomes,” she pointed out that such research has limitations.

“My key concern about this type of research is that it only looks at the variation in minimum wages that can be observed in historical data,” Sinclair said in an e-mail. “These results may not be predictive of what will happen going forward, particularly if a large increase in the minimum wage is enacted.”

Nevertheless, the results are encouraging, added Sinclair, who is also an economist.

“There has been a substantial drop in the share of national income going to labor and if an increase in the minimum wage could shift that without unintended consequences then I think that would be a good thing,” she said.

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