PAYDAY Workforce Solutions Blog

What Will California's Minimum Wage Increase Mean for Business Owners?

On Jun 4, 2013

Workers in line for Minumum Wage IncreaseJune 19, 2013: The text of the bill was amended and re-referred to the Committee on Labor & Industrial Relations. The amended text removes the stipulation that the wage increase be tied to the Consumer Price Index. The gradual increase to $10 per hour by 2018 remains. Please read the amended version of the bill here.

The California Assembly voted on May 30 to increase the minimum wage in California over the next three years, boosting it from $8 an hour to $9.25. Assembly Bill 10, which proposes to raise the minimum wage for the first time since 2008, passed the Assembly Labor and Employment Committee in April. The legislation now goes to the state Senate. Slated to take effect on January 1, 2014, AB-10 also stipulates annual cost of living adjustments starting in 2017, as measured by the California Consumer Price Index.

The implications of raising wages for the lowest-paid, legally-employed workers, the majority of whom are adults supporting families, is at the center of political and ideological debate about the ramifications of the bill in California.

How Might California AB 10 Affect My Business?

Increasing the California minimum wage constitutes a direct increase in employer costs:

  • When payroll increases, so do payroll taxes and workers' compensation insurance costs.
  • Employers may react by tightening up on employee hours or reducing their work force.
  • Business owners may need to raise prices on products, because vendor and supplier prices will likely rise as well.
  • Restaurants will be dealing with AB 10 payroll changes just when faced with implementing the Affordable Care Act (ACA) in 2014.
  • Employers may be faced with raising wages on current workers to stay ahead of AB 10 rates.
  • Businesses may face current worker dissatisfaction and retention issues if entry-level workers get a minimum wage hike and their pay does not go up as well.

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Is California’s Minimum Wage Bill Good or Bad for the Economy?

Depending on whom you ask, a raise in the minimum wage could both hurt businesses and make it harder for workers to find employment and retain their jobs, or help workers and the general economy, including businesses. Assemblyman Luis Alejo (D-Salinas), who wrote the bill, said in a statement that raising California's minimum wage would “allow our families to provide for their children, pay their bills and give them dignity and respect.” Meanwhile, California Republicans continue to oppose the bill, saying that raising the wage would make it harder for companies to hire new workers and would negatively affect the economy.

One thing everyone agrees on: The sheer volume of low-wage workers in California, where 2 million (one in eight workers) is paid $8.80 or less per hour, raises the stakes significantly for both employees and business owners. Minimum wage hikes raise the labor cost for employers, and this bill is no exception to the rule. Because half of minimum-wage earners are in sales or service, industries such as retail, restaurants, leisure and hospitality could be heavily impacted.

While many business owners are justifiably worried about how AB-10 will negatively impact their bottom line, many other business owners support wage increases. Industry analysts point out that it could present a potential boost for some businesses, especially those in the entertainment industry. Those businesses will benefit because it will result in more low-paid workers having money to watch films, attend concerts and see attractions.

In addition, increased minimum wages in several cities do not appear to have had a negative impact. In California, for example, San Francisco and San Jose have already set minimum wages above the state mandate, and Long Beach voters passed a "living wage" measure raising the lowest pay for some hotel workers to $13.00 an hour.

The good news is that it is possible many businesses will benefit from the greater spending power of low-wage earners, who historically are not able to save, and who will spend their boosted earnings on local businesses, services and restaurants, offsetting modest cost increases.Health Care Reform: Key Dates

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