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Policy Priority – Minimum Wage

August 26, 2015

The State minimum wage increased from $8 to $9 per hour on January 1, 2015, and rose in January of 2016 from $9 to $10 – a total increase of 25 percent. The City of San Diego’s current proposal appeared on the June 2016 ballot and passed. Wages in the City of San Diego will immediately rise to $10.50 and, in January of 2017, increase to $11.50 per hour before being pegged to inflation moving forward. An $11.50 minimum wage would be an increase of 44 percent in just over a two-year period.

Contrary to popular belief, raising the minimum wage is not a “silver bullet” for solving poverty. While wage growth is possibly the most important measure of the strength of our economy, poverty reduction strategies that weigh too heavily on increasing the minimum wage have limited success. Organic wage growth occurs when employers increase wages to better compete in the market, such as when Target and Walmart increased their wage floors looking for increased morale, retention and attraction.

Chamber’s Position

Increasing minimum wage has several economic impacts; however, the drastic increases in minimum wage being adopted in several cities across the nation is something we have never seen before. It will likely provide some clarity to the true effect of such a policy change. What is clear: substantial increases in minimum wage will be a considerable disruption to employers of employees earning minimum wage. An increase of 44 percent in a small business’s labor expenses would result in layoffs. In particular, small and medium-sized businesses are operating on already slim margins, and raising the minimum wage could simply squeeze them out. They might reduce hours, cut staff, and raise prices to stay afloat.

The Chamber is focused on keeping utilities reliable and affordable so that businesses can hire and raise wages. A good business climate is the cornerstone of any successful poverty reduction strategy. In addition, the Chamber supports an array of proven ways to fight poverty such as staying the course on eradicating chronic homelessness, bolstering the effectiveness of workforce development and K-12 education, and investing in the state Earned Income Tax Credit. Efforts to reduce poverty are most effective, and carry the fewest negative economic impacts, when several approaches are taken together.

Latest Activity

PLEASE NOTE: The San Diego City Council met on Monday, July 11, 2016, at which time they voted to pass an ordinance to implement and enforce the new Earned Sick Leave and Minimum Wage Ordinance. This document should not be construed as anything other than Chamber staff’s interpretation of pending regulations.

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The San Diego City Council voted to certify the results of the June 7, 2016 election which included the Earned Sick Leave and Minimum Wage Ordinance passed by voters. The certification of the results on July 11, 2016 requires businesses to immediately comply with this ordinance which increased minimum wage to $10.50 per hour, and requires for all employees – regardless of wage – to receive a minimum of five days of Earned Sick Leave to be provided either upfront, or accrued at a rate of at least one hour for every 30 hours worked.

 

Mayor Faulconer signed the Minimum Wage Implementation Ordinance on August 3, 2016. The ordinance, which includes enforcement and compliance provisions, took effect on September 3, 2016. Chamber staff was heavily engaged in achieving some common sense changes prior to Council approval. For more information, visit the minimum wage page on the City’s website.

 

The clarifications and amendments most likely to be of great importance to your business that occurred since this item was presented to the Council Committee were:

  • Employers were permitted to cap the accrual of Earned Sick Leave at 80 or more hours.
  • Employers were provided the option to “frontload” 40 hours of sick leave at the beginning of a benefit year.
  • For first-time offenders, a $10,000 cap on penalties was included for each type of violation.
  • It was specified that an employer may comply with the Earned Sick Leave requirement through an agreement to provide greater paid time off benefits as calculated using an alternative methodology.

 

This is how the regulation currently stands:

Businesses Subject to Ordinance

  • The new ordinance applies to the hours worked within the geographic boundaries of the City of San Diego.
  • The new ordinance applies to all employees who work at least two hours within the geographic boundaries of the City of San Diego in any given week throughout the year.

Minimum Wage

  • Employers are required to pay a minimum rate of $10.50 per hour.
  • The minimum rate of pay increases to $11.50 per hour on January 1, 2017.
  • The minimum rate of pay increases to account for inflation each year starting on January 1, 2019.

Earned Sick Leave

  • Employers are required to provide a minimum of 5 days of Earned Sick Leave either upfront, or accrued at a rate of at least 1 hour for every 30 hours worked.
  • The Earned Sick Leave pay rate is required to be the same as the regular pay rate.
  • An employer may cap the use of Earned Sick Leave at 40 or more hours within a benefit year.
  • Unused Earned Sick Leave must be allowed to roll over from one year to the next, and cannot be capped at less than 80 hours.
  • Employers are not required to pay out unused Earned Sick Leave when a term of employment ends.
  • This requirement is not in addition to the State-mandated 3 days, but will satisfy the State requirement.
  • Other forms of paid time off may be substituted for Earned Sick Leave as long as they may be used as Earned Sick Leave.
  • An employer may comply with the Earned Sick Leave requirement through an agreement to provide greater paid time off benefits as calculated using an alternative methodology.

Enforcement & Penalties

  • An employee may file a complaint with the City, which has the authority to assess penalties, and/or bring a cause of action against an employer in a court of competent jurisdiction to enforce the ordinance and may be entitled to back wages, damages, and legal fee recovery.
  • Each day a wage below minimum wage is paid constitutes a separate and distinct violation.
  • Each day the earned sick leave requirements aren’t met constitutes a separate and distinct violation.
  • The same type of violation affecting multiple employees is counted as multiple violations.
  • The penalty for the first violation is between $500 and $1,000, and the minimum and maximum penalties are increased by 50% for each subsequent violation.
  • Penalties for first-time offenders are limited to $10,000 for each type of violation.
  • Failure to provide notice and/or post as required by the ordinance subjects an employer to a penalty of $500 for each employee up to $2,000.

 

We will continue to seek clarity of this new law as well as advocate for a sensible implementation ordinance that focuses on training before penalties, and otherwise treats businesses fairly during the transition to these substantial new labor regulations.

How to get involved

Please share with us any points of clarification you are seeking, or other questions so we can work to bring you answers. Contact Sean Karafin, Executive Director of Policy & Economic Research, at skarafin@sdchamber.org.

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