LAST REVIEWED Sep 18 2019 11 MIN READ
By Cyndia Zwahlen
Small business owners face higher labor costs in the cities and states where new minimum wage laws go into effect starting January 1, 2017, often the first of what will be a string of small hikes over several years that many businesses are unsure how they will cover. Adding to the anxiety is the uncertainty over the new federal overtime rule, which was supposed to start December 1, 2016 but was put on hold by a federal judge. Here are a few tips on how to prepare and what to expect in the coming months and years.
New federal overtime rules
The new federal overtime rule would raise the salary threshold for exempt employees — those white collar workers who are exempt from earning overtime pay — to $47,476 a year from the current $23,660, which was set in 2004. The last minute hold by the federal judge took the business community by surprise. And on December 1, 2016, the hold was appealed by the U.S. Labor Department. It’s unclear how long the appeals process might take and, given that the new administration takes over on January 20, 2017 and may make its own changes to the labor law, the fate of the overtime rule is far from certain. It seems likely that the salary threshold will be raised at some point but it may not be as high and may be phased in gradually, according to experts.
State and city minimum wage hikes
Will your small business face a higher minimum wage this year? If you are in any of these 11 states, it will. Also, some cities have enacted their own, higher, minimum wages. Arkansas: The minimum wage will go up 50 cents to $8.50 an hour by Jan. 1, 2017. California: Goes up 50 cents to $10.50 an hour on Jan. 1, 2017 for businesses with 26 or more workers. Over the next five years it will climb incrementally to $15 by 2022. Small businesses get a one year delay on each hike. If you are a small California employer who has 25 or fewer employees, you get an extra year to comply with each of the wage hikes that are scheduled there through 2020. So in 2017, you can stick with the current minimum of $10 an hour. In 2018, it will be $10.50 and by 2021, $15 an hour. Colorado: Up 99 cents to $9.30 for 2017. By 2020 it will be $12 an hour. Connecticut: Up 50 cents to $10.10 in 2017. Hawaii: Up 75 cents to $9.25 an hour in 2017, then to $10.10 in 2018. Maine: Up $1.50 to $9 an hour in 2017, with annual hikes until it hits $12 in 2020. Massachusetts: Up $1 to $11 an hour in 2017. New York: Varies across the state. In the three counties near New York City (Nassau, Suffolk and Westchester) it increases $1 to $11 in 2017, then gradually climbs to $15 in 2021. In the rest of the state it goes up 70 cents to $10.40 in 2017, then bumps up each year til it hits $12.50 in 2020. New York City: For small businesses with 10 or fewer employees, the minimum wage goes up $1.50 an hour to $12 in 2017, rising to $15 by 2020. Oregon: Varies by area. In the Portland metropolitan area, goes up $1.50 an hour to $11.25 on July 1, 2017, then grows over five years to $14.75 by July 1, 2022. In non-urban counties, the rate jumps 50 cents to $10 an hour on July 1, 2017, then climbs over give years to $12.50 an hour. Vermont: Up 40 cents to $10 on Jan. 1. 2017, then up 50 cents to $10.50 in 2018. Washington: Up $1.53 an hour to $11 in 2017, then up in 50-cent increments to $13.50 an hour in 2010. After the new minimum wage has been reached in most states, adjustments will be made each year based on the states’ respective cost of living numbers. Many states still have lower minimum wages levels for restaurant workers who earn tips. No minimum wage hikes are scheduled for Texas or the 18 other states that by default use the federal minimum wage of $7.25. Nor is there a hike coming in Georgia or Wyoming, where the state minimum wage is $5.15 an hour, but employers actually have to pay at least the federal minimum. Several high-cost cities, including San Francisco, Los Angeles and Seattle, have approved a $15 minimum wage to be phased in with small hikes over several years.
Doing the math: How does this affect your bottom line?
If your small business is located in a state where the minimum wage is going up, how will it affect your bottom line? If you now pay minimum wage to some of your employees, you can do a direct calculation to see what the higher rate will cost you each year that a hike goes into effect. If you have five full-time employees who earn minimum wage, you will pay a total of $100 more a week in 2018 . And your payroll taxes will go up a bit as well. No matter what size your business, even if you have employees who already earn more than minimum wage, you will likely have to increase their wages to maintain that gap. Plan now how you’ll be covering higher wages: Maybe your profit margins or your growth rate can comfortably absorb the extra expenses. Otherwise, you will need to either cut costs elsewhere, increase sales through higher volume or prices or a combination of all three. Adjust your business plan to show how you will cover the higher costs and then keep track of your progress on a weekly basis. As a small business, you have the advantage of being able to innovate and make adjustments to your business more easily than a bigger more cumbersome company. You can also stay ahead of most of your small business competition by being proactive about covering the higher costs. Waiting for the finalization of the overtime rule: Many small businesses may choose to hold off on tallying the cost of, or making changes based on the overtime rule until its fate is clear. Alert your employees: Tell your workers if and how they will be impacted by a minimum wage hike. That would include changes to the business that may need to be made to cover the higher costs, such as new sales goals, higher prices or fewer hours on their schedules. Ask your team for ideas on how to cut costs and increase sales. A team effort is more likely to succeed, faster, than a top-down solo effort by the business owner, You may also be required to post updated wage law information posters required by state and federal labor agencies. Check your state’s labor website for a PDF of the information you have to post. Adjust your record-keeping: Whether you use an in-house payroll system or a payroll company to track your workers’ hours and wages, update the information in time to comply with upcoming wage increases. State and federal labor laws require you to maintain accurate records of the hours worked and wages for each employee. Other data tied to wage levels, including bonuses, also needs to be changed to reflect any wage hikes.
Keep track of upcoming changes
The higher minimum wage trend, which has been building for several years, is likely to continue. So even if your state has not yet voted in an increase, it may. In New Jersey, for example, a bill to hike the minimum wage was vetoed in 2016 but will be on a ballot initiative for voters to decide in 2017. And while the overtime rule now on hold may eventually be struck down, keep an eye out for another proposed version to surface in 2017. Additional resources: Minimum wage information by state, both current and upcoming is compiled by the National Conference of State Legislatures here. Check your state, city and county labor agencies for the most recent and accurate wage law information.
Cyndia Zwahlen, a former small-business columnist for the Los Angeles Times, is a freelance business writer and editor for media, academic and business clients. She founded the Small Biz Mix blog.