Last week, I was up in Sacramento speaking with legislators on one of our monthly advocacy trips with our members of the Valley Industry and Commerce Association. A new year brings new bills: hundreds of ideas, some fresh, and some old. The new year also brings an opportunity to fix the unintended consequences of past “new ideas,” many of which impact the business community.
I want to go back a few years and explore what happens when the Legislature passes a law which substantially changes employment law in California – and then fails to do any kind of follow up.
In 2016, California legislators chose to implement a new minimum wage, which steps up on Jan. 1 each year until it reaches $15 an hour in 2022. Los Angeles has a minimum wage that will always be higher than the state minimum wage due to the scheduled increases in line with inflation. But no Angeleno business owner can ignore the California minimum wage.
That’s because, contrary to what many people believe, minimum wage doesn’t just mean that hourly workers get a few extra bucks an hour. As business owners, you know that a higher minimum wage means other labor costs go up too: including higher overtime costs and a higher salary threshold for your exempt employees.
California has strict rules about who can be considered an exempt employee – that is, exempt from overtime and trusted to manage their own time, including meal and rest breaks. In addition to a duties test and other requirements, exempt employees have to be compensated above a salary threshold, which in California, is double the state minimum wage.
In 2020, that salary threshold is $49,920 for employers with 26 or more employees, and it will rise to over $62,000 in the next few years. And that impacts a lot of people.
I’ve heard from a couple of different types of organizations who are being forced to change their hiring practices in a way that proponents of the minimum wage increase did not anticipate.
The first group of people who raised concerns were nonprofit organizations. I heard from all kinds of nonprofits that they were reevaluating positions such as fundraising professionals or activities directors. Some of those positions had their salary increased, a short-term solution since the threshold is continually rising. Others switched to nonexempt hourly rates, an expensive and restrictive solution for positions that never work a standard 8-hour day, 5-day week schedule. And some of those positions have just been eliminated.
The second group I heard from, employers hiring young professionals right out of college, started raising concerns with the latest increase. New graduates have the energy and motivation to take on stretch assignments, to go to industry events and build their networks, and to put extra effort into projects in order to build their reputations.
But if I’m paying a new graduate hourly, and especially if I’m paying them overtime, I’m less able to take a risk and pay them for the extra time they need to build their career as quickly. Sure, they’ll be fine long-term, but the rising salary threshold limits the risk that employers are willing to take on giving them those opportunities.
No one is asking for the minimum wage to be lowered. When the next recession hits, I anticipate needing to revisit the annual increases. But there are steps that the Legislature could take right now to mitigate some of the unintended consequences of this huge change to the law.
Two simple fixes would be adjusting the salary threshold so that it is not linked to the minimum wage. A second fix would be to allow a flexible work week, so that employees could choose to work more than 8 hours in a day without incurring overtime. That would help the fundraising professional trying to get everything done before the annual gala, or the new graduate who wants to attend an evening industry event.
Following up on a major law to fix the inevitable problems isn’t an admission of failure. It’s a vital part of responsible lawmaking, and as all the new ideas roll in, I urge our Legislature to take a fresh look at the laws we already have.