In a message-sending 14-1 vote, the Los Angeles City Council voted yesterday to increase its minimum wage to $15 an hour by 2020. This increase will apply to small businesses, to part time and tipped employees, and to non-profit organizations. As the second-largest city in the country, Los Angeles has raised the bar in a critical victory for those who push for higher minimum wages across the country.
The impact on Los Angeles’ work force cannot be overstated, as more than 40 percent of city’s employee’s currently earn less than $15 per hour. However, the impact on Los Angeles’ businesses will remain uncertain until the city sees the effects of yesterday’s vote on surrounding cities, which will take some time.
Detractors of the higher minimum wage argue that the city will turn into a “wage island” from which businesses will flee to surrounding locations to avoid paying the higher minimum wage. Proponents of the wage increase, on the other hand, predict that Los Angeles is simply leading by example and will likely set off a wave of wage increases all across Southern California.
Regardless of who is right, it is certain that the cost of failing to comply with California’s wage and hour statutes will increase tremendously. Think about this: under current law, if you fail to pay a terminated employee who was earning $9 an hour at the time of her termination, you are liable to her for “waiting time” penalties for up to thirty days at her current wage rate. In other words, $2160 for the thirty days. If that same employee was earning $15 an hour at the time of her termination, then those penalties add up to $3600.
Now, imagine in a class action multiplying this by the total number of employees terminated in the last few years and you start to understand why an HR audit of your pay and other employment practices may be the best investment in your business you can make right now, before those wages increase.