June 26, 2015

Dan Handman Speaks to the Daily Journal About Minimum Wage Increases on the Horizon


The text of Dan’s article is below:

Sea changes are afoot with the minimum wage

In a nearly unanimous vote on June 10, the Los Angeles City Council cleared the way to make the city the largest in the United States to have a minimum wage to $15 per hour. The raise will fully go into effect in 2020. Currently, the minimum wage is $9 per hour and it will rise to $10.50 per hour on July 1, 2016, for private employers with 25 or more employees. Employers with fewer than 25 employees will have an extra year to comply.

There are several other exceptions to the city’s minimum wage increase. It will not apply to nonprofit corporations so long as any one of the following conditions is met: (1) the chief executive makes less than five times the lowest wage paid to an employee; (2) the company hires transitional employees as part of workforce training programs; (3) the company provides child care; or (4) the company is funded primarily by government grants. Likewise, employees aged 14 to 17 can be paid 85 percent of the minimum wage for the first 160 weeks.

This comes on the heels of what may well be a statewide increase in the minimum wage. Earlier this month, the state Senate approved an increase in the state minimum wage to $11 per hour on Jan. 1, 2016, and to $13 per hour on Jan. 1, 2017.

Undoubtedly, this is part of a national trend – at least on the state and local levels – as income inequality comes to the forefront of the upcoming presidential election. San Francisco and Seattle have already approved minimum wage increases to $15 per hour, Chicago has passed an increase to $13 per hour, and St. Louis and Kansas City are debating a significant raise. Los Angeles, however, is far and away the biggest city to make this change. Studies suggest that this ordinance will affect over 500,000 people.

With Congress poised to make no change until at least after the 2016 election, any minimum wage changes will have to take place in state legislatures and city halls. President Barack Obama has proposed an increase of the federal minimum wage to $9 per hour and indexing it to the rate of inflation thereafter, but that appears to be stalled in Congress.

Critics maintain that this dramatic minimum wage increase will cost the city jobs, as small businesses are unable to pay significantly higher rates of pay to low-earning employees. Indeed, a 2007 study by the Federal Reserve Board of Governors concluded that minimum wage increases almost always reduce employment. Other studies have reached the opposite conclusion, or at the very least, have found that raises in minimum wage have no impact on the rate of employment. The Los Angeles raise is so significant though – two-thirds of the current rate – it will undoubtedly be the basis of future studies.

At the same time, the federal government is also poised to change the way that employees are considered for purposes of overtime compensation. Under the Fair Labor Standards Act, the federal law governing overtime compensation, certain white collar employees can be exempted from the overtime requirements if they meet three tests: (1) they have the duties of an “executive, administrative, or professional”; (2) they are paid on a salary basis; and (3) they receive a salary no less than $23,660 for an employee working 40 hours a week.

Obama is expected to bypass the deadlock in Congress on minimum wage by raising that minimum salary by perhaps more than double its current level. Employers around the country would likely need to raise the salaries of exempt employees in order to keep pace with that raise, though in California the effect would be somewhat less drastic since the minimum salary requirement is already higher than under the FLSA. Regulations adopting this change are expected over the summer.

As the presidential election season heats up, politicians will be faced with hard questions about the minimum wage, overtime and other compensation issues tied into the income inequality debate. Los Angeles will be at the center of that national discussion.

Daniel H. Handman is a partner with Hirschfeld Kraemer LLP, based in the firm’s Los Angeles office. You can reach him at DHandman@hkemploymentlaw.com.

Originally published in the Los Angeles/San Francisco Daily Journal, June, 24, 2015. Copyright 2015 Daily Journal Corporation, reprinted with permission.