Friday, July 18, 2014

Minimum Wage Increase, Part 2 - San Diego Minimum Wage Increase Will Crush Small Businesses

Prior Blog Recap

In a recent blog post I discussed the recent change in the minimum wage rate increase in California. I outlined the history of minimum wage as well as some of the absolutely real effects that it will have on businesses both large and small. I also brought up the point that even those businesses who do not hire any minimum wage workers will be effected and that their labor cost will also increase. In this blog post we will take two case studies and put into dollar amounts the actual detriment of these drastic wage increases for businesses. Study A will be on a small business that employs ZERO minimum wage workers. Case Study B will focus on a large corporation that was minimum wage workers as well as many other pay scales. Both of these businesses reside in San Diego, California for purposes of calculating the labor wage.



Definitions 

Work year - 5 U.S.C. 5504(b) mandates that for purposes of computing hourly rates for salary purposes, a work-year contains 2087 hours.

Bi-weekly - A pay period that consists of a cumulative 14-day period. There are 26 bi-weekly pay periods in a year.

Bi-monthly - A pay period that occurs twice a month.There are 24 bi-monthly pay periods in a year.

Monthly - A pay period that occurs once a month. There are 12 monthly pay periods in a year.

Full-time - 40 hours per work week.

Part-time - Traditionally anything less than 40 hours per week and then defined my the business itself. After the Patient Protection and Affordable Care Act that is now set by federal law to 30 hours per week.

Federal Insurance Contributions Act (FICA) - Detailed Definition.

Social Security Tax (Part of FICA) - Detailed Definition.

Medicare Tax (Part of FICA) - Detailed Definition.

Federal Unemployment Tax Act (F.U.T.A.) - Detailed Definition.

State Unemployment Insurance (S.U.I.) - Detailed Definition.

Workers Compensation Insurance (W.C.) - Detailed Definition.

Case Study A - A small business that has zero minimum wage workers employed

Small Professional Services Firm - Current pay structure as of Jan 1st, 2014, 
Legal Minimum Wage is $8.00/hour
Legal Minimum Salary Wage equates to $16.00/hour
Total Number of Employees 10
 2 - Hourly Based Office Clerks: 
 2 - Salary Based Accounting Clerks
 5 - Salary Based Professionals who provide the service
 1 - Salary Office Manager




Small Professional Services Firm - Current pay structure as of Jan 1st, 2017
Legal Minimum Wage is $11.50/hour
Legal Minimum Salary Wage equates to $23.00/hour
Total Number of Employees 10
 2 - Hourly Based Office Clerks
 2 - Salary Based Accounting Clerks
 5 - Salary Based Professionals who provide the service
 1 - Salary Office Manager




Manufacturing Business Current pay structure as of Jan 1st, 2014
Legal Minimum Wage is $8.00/hour
Legal Minimum Salary Wage equates to $16.00/hour
Total Number of Employees 65
 45 - Hourly Based Assemblers
 2 - Hourly Based Office Assistants
 1 - Salary Based Office Manager
 5 - Salary Based Accounting Clerks
 1 - Salary Based Comptroller
 1 - Salary Based Vice President of Sales
 1 - Salary Vice President of Operations
 1 - Salary President and CEO of Operations




Manufacturing Business Current pay structure as of Jan 1st, 2017
Legal Minimum Wage is $11.50/hour
Legal Minimum Salary Wage equates to $23.00/hour
Total Number of Employees 65
 45 - Hourly Based Assemblers
 2 - Hourly Based Office Assistants
 1 - Salary Based Office Manager
 5 - Salary Based Accounting Clerks
 1 - Salary Based Comptroller
 1 - Salary Based Vice President of Sales
 1 - Salary Vice President of Operations
 1 - Salary President and CEO of Operations




Analysis

In Case Study A you can see that a business that doesn't employ any minimum wage workers will be drastically impacted by the minimum wage increase when final wages go into effect January 1st, 2017. This small business will experience a wage increase of almost 40%. 

In the example of Case Study B you will notice that a manufacturing business that does employ minimum workers will also be drastically impacted and not just by the increase in wage of its minimum wage workers. This business will experience an increase in wage costs by over 40%. 

What will this do to the economy? Well, it most likely will be a combination of things depending on the type of business. Jobs will be cut. Prices for goods and services will go up. Businesses will not bear the brunt of all of this additional cost and in some case the additional cost will put businesses out of business unless their income, in the form of an increase in goods and services, goes up. 

Solution

1. Vote Smarter: Local (City Council,) State and at the national level
2. Implement a true minimum wage increase policy indexed for inflation and deflation 



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