We have all heard the news. California’s Legislature, comprised of a super-majority of Democrats, have voted to increase minimum wage to $10 per hour. You know the arguments — a family can’t live in minimum wage; business can’t afford to operate with increased wages; this will stimulate the economy because people have more to spend; consumers will not pay more for certain products or services; etc. But what are the direct and immediate consequences of the increase on an employer?
First, an employer will be paying an extra $4,160 for one year’s worth of full-time employment. In addition, an employer will be saddled with about another 10 percent in payroll taxes. Thus, the increase equals the cost of employing the equivalent of one-quarter of one full-time employee. With every four minimum wage employees, an employer will be increasing labor costs by the equivalent of one full-time worker. the business owner will be required to figure out whether (s)he can pass the cost to the consumer, eat the increased costs or eliminate positions.
Second, the minimum wage in California is based on the minimum wage. Currently, a employee can be considered exempt if (s)he passes the duties test and if (s)he is paid a salary of $33,280, twice the minimum wage for full-time work. When the minimum wage increases to $10 per hour, the salary minimum will increase to $41,600. This is a jump of $8,320. Employers who fail to increase an exempt employee’s salary will then be liable for overtime compensation. Most of these employers will also err and fail to keep proper time records on these formerly exempt employees, resulting in more wage and hour violations. Of course, these types of claims also result in waiting period penalties, meal period premiums and attorneys’ fees.
This increase is substantial. It will have serious consequences on business. Combined with other regulations and costs, including Obamacare, businesses will be faced with daunting economic challenges.
For some reason, this makes me think of the job applicant I interviewed a few years ago. When I told her the wage ($12 per hour), she told me she was not interested. She made that on unemployment benefits and did not have to pay for child care. Since she still had six months of unemployment benefits, she walked away from a good job opportunity with real growth potential.
i just don’t get it. Why don’t our politicians promote work, education and skills acquisition as opposed to taking money from the productive? The minimum wage increase is a wealth transfer, a tax on people who work and produce at a higher level than a person equipped with the limited skills of asking, “Would you like fries with that burger?” Now we get to pay an additional $4,160 to the person who asks you that question. I am sure that is music to your ears!