What’s your Wage Strategy?
If you haven’t already, it’s time to review your wage strategy for the next few years. Wages in California used to be a lot simpler. There was just one minimum hourly rate and one minimum salaried rate. These days there are many more complexities.
If your employee qualifies as a salaried exempt employee under the administrative, professional, or managerial exemptions, you must pay them at least the minimum salary. That wage is tied to twice the minimum wage multiplied by 2,080 hours per year. For employers with 25 or fewer employees, it is $45,760 in 2019. For employers with greater than 25 employees, the rate is $49,920. This minimum salary still applies even if the person works part-time hours. It cannot be prorated.
There are also two different minimum hourly rates in 2019. The minimum wage for employers with 25 or fewer employees is $11 an hour and $12 per hour for employers with over 25 employees. In addition to these two different levels of California minimum wage requirements, there are 23 cities or local ordinances within California (including the City of San Diego) that have adopted their own minimum wage. There are very few exceptions to the minimum wage rules.
If you have any sales people who are under the inside sales exemption you also need to review their compensation as well. Inside sales people can be exempt from overtime if their earnings paid in each pay period exceed 1 ½ times the minimum wage and more than half the employee's compensation represents commissions. Be careful with this exemption, it is very narrow and different from the other white collar exemptions.
As minimum wage increases, it leads to wage compression. This occurs as new workers are hired at nearly the same rate as workers with more skills, experience, or seniority. Or you hire a lower level employee at a rate closer to that of a high-level employee, such as a manager. Unless there is a plan in place to account for this problem, it can lower morale and lead to decreased productivity and increased turnover.
There are other considerations going forward. As minimum wage continues to rise, wage compression continues to put pressure on all middle level jobs. In addition to the increase in wages, consider the other rises in costs that are tied to wages, such as payroll taxes, workers comp insurance, vacation and sick pay costs and other similar expenses. An important part of your wage strategy should be to review pricing for products or services. Since wages typically make up a large percentage of a business’s expenses, determine if and when you will have to adjust the pricing of your products. Should you do it in one change that takes into account all the wage increases through 2023? Or will you make a few gradual increases as wages rise? Another consideration is that your suppliers and vendors may also be raising their prices to you as they contend with the same issues. Many restaurants have taken the strategy of adding a surcharge to food. This allows them to keep the published menu price the same, while identifying this increase as directly tied to the increase in the minimum wage (and often sick time requirements). Higher level jobs are also impacted. Since the minimum salary for exempt workers is tied to California’s minimum wage, by 2023 that salary will rise from current levels ($43,680 for smaller employers to $45,760 for those with 26 or more) to a whopping $62,400. Now is the perfect time to consider your wage strategy for the next few years.
Laura Henderson is a Human Resources professional with over 20 years experience working with a variety of businesses.