SACRAMENTO – California’s hourly minimum wage will increase once again this coming January, from $15.50 to $16, and a 2024 ballot measure could lead to an even greater hike within the next few years.
The increase, which takes effect Jan. 1, 2024, will impact all businesses regardless of staff size, and the minimum annual salary for full-time exempt employees will also increase from $64,480 to $66,560. Gail Zurek, president and CEO of the Visalia Chamber of Commerce, said that while beneficial in some aspects, the increase brings about additional challenges for local businesses.
“I think it’s important to say that on the surface, everybody wants our neighbor and community to have a wage that allows them to have housing and food and provide for their families,” Zurek said. “That has never been an argument that businesses have had. The challenge comes in the details.”
LOCAL IMPACT
In the Central Valley’s unique landscape, a minimum wage increase can have a different effect than other parts of California.
“It definitely impacts small businesses as far as eating into their profit margins, but typically what I think happens is … it will go back to the consumer,” Erik Valencia, president and CEO of the Greater Reedley Chamber of Commerce, said. “It does make it difficult because some businesses don’t want to raise the prices on their customers.”
Valencia said that the region may see a greater impact because it tends to have more small businesses than other parts of the state. Smaller businesses mean that cost increases take up a larger percentage of their bottom line compared to those of bigger retailers.
“Particularly, (in) a state with the fifth largest economy in the world, when you make one blanket statement for a state this large and this diverse, many communities aren’t considered in that conversation,” Zurek said.
For Sam Ramirez, owner and operator of Revel Events Co. in Visalia, the minimum wage increases haven’t always translated to the amount they are able to charge clients, so there is sometimes concern with how they are going to accommodate the wage increases.
He added that Revel Events pays all of their employees above minimum wage to start with, and the increases make it more difficult for them to remain competitive.
Increasing the minimum wage gives people more buying power, but that’s not the full picture. For any employer, a wage increase incurs larger costs than just what’s going into the employee’s pocket because they also have to pay into things like worker’s compensation insurance, unemployment insurance and other state payroll taxes.
Ramirez said that small businesses in general can be “crushed by the amount of taxes” it takes to operate, and “anytime that tax rate is affected, it’s got to give somewhere else in that business.”
Zurek said that as it becomes more expensive to employ people, it “forces employers to figure out how to do more with less.” She added that employers may reduce their labor size, which often “squeezes out” youth labor.
“It also means that employers have to be thoughtful about how they grow,” Zurek said. “Bringing somebody on is a much more expensive piece.”
Ramirez said with a labor-driven business like his, they have to look at how to be more efficient in their growth. The minimum wage increase – among other economic factors – informs the choices they make around investing in the business and investing locally, he said.
“We would love to be able to grow and add some additional resources inside the company, but because of uncertainty around supply chain, cost of goods, minimum wage – there’s so many factors that we just can’t forecast – it makes us really hold back and think … because we just don’t know what it’s going to look like,” Ramirez said.
Valencia and Zurek said that local businesses always want to ensure people have a living wage, but current conditions make business operations more challenging.
“We have such a diverse business community … I think it makes it really hard to apply those standards across the board,” Ramirez said.
WHERE IT CAME FROM
California Department of Finance Director Joe Stephenshaw announced and certified the increase on July 31, as required by the state’s labor code. The requirement was part of an amendment to the labor code passed by the state legislature in 2016 that phased in the $15 minimum wage.
The labor code stipulates that once minimum wage for all employers is above $15, the state finance director must determine annually before Aug. 1 whether or not the minimum wage needs to be adjusted for inflation.
If that is the case, the wage is increased by the smaller of two calculations: either 3.5% of the current minimum, or by the rate of change reported in the averages of the Consumer Price Index (CPI) from the most recent fiscal year over the fiscal year before it.
Basically, the state compares inflation rates – how much the cost of consumer goods has gone up – from the last two years to assess the need for a minimum wage increase. If the rate of change in the CPI averages as negative, the minimum wage does not change. If the rate of change is less than 3.5%, that rate is used to calculate the minimum wage increase.
According to the determination and certification Stephenshaw submitted to the state, the department of finance calculated that the United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W) “for the 12-month period from July 1, 2022, to June 30, 2023, increased by 6.16% compared to the 12-month period from July 1, 2021, to June 30, 2022.”
Because 6.16% is larger than 3.5%, the increase was based on 3.5% of the current minimum wage and rounded to the nearest 10 cents, making the new minimum wage an even $16.
WHERE IT’S GOING
Also of concern for local businesses is a measure that will appear on the 2024 state ballot, known as the “Living Wage Act of 2022.”
If passed, the initiative would amend the labor code to extend the phased minimum wage increase to reach $18 by Jan. 1, 2026.
The initiative proposes to increase the minimum wage for employers with 26 or more employees to $17 by Jan. 1, 2024, and $18 by Jan. 1, 2025, and to increase the minimum wage for employers with 25 or fewer employees to $16 by Jan. 1, 2024, $17 by Jan. 1, 2025 and $18 by Jan. 1, 2026.
Zurek said that when looking at business growth and hiring, employers have to not only consider the increased costs in 2024, but they have to anticipate what things will look like for them if the initiative passes.
“We’re one of the first (industries) where spending contracts when the economy is getting tougher,” Ramirez said. “I don’t see how we are able to operate in the same way today under those types of rates and those conditions.”
Ramirez said that more leeway or conversation about how local businesses can gradually step up to some of these changes would be beneficial, as “great big leaps are what makes it challenging and concerning for us.”
“Our people work really hard for what they have, and they deserve every bit of it, but allowing us to make those decisions that are best for us and our people is really helpful,” Ramirez said.
