minimum wage

Coping with a $15 Minimum Wage

The impact of an increased minimum wage will be felt throughout NJ. Is there anything businesses can do to soften the blow?

In February, Governor Murphy signed legislation that will gradually increase the minimum wage in New Jersey to $15 per hour from the current rate of $8.85 per hour, and there are a number of things that concerned employers should consider when examining this reality.

Under the new law, the base minimum wage for New Jersey workers will increase to $10 per hour on July 1, 2019. By January 1, 2020, the statewide minimum wage will increase to $11 per hour, and then will increase by $1 per hour every January 1st until it reaches $15 per hour on January 1, 2024.

For seasonal workers and employees at small businesses with five or fewer workers, the base minimum wage will reach $15 per hour by January 1, 2026. By January 1, 2028, workers in these groups will receive the minimum wage inclusive of inflation adjustments that take place from 2024 to 2028, equalizing the minimum wage with the main cohort of New Jersey workers.

For agricultural workers, the base minimum wage will increase to $12.50 per hour by January 1, 2024. No later than March 31, 2024, the New Jersey Labor Commissioner and Secretary of Agriculture will jointly decide whether to recommend that the minimum wage for agricultural workers increase to $15 per hour by January 1, 2027, as specified in the bill.

Handling Employees Already Making More than $15 per Hour

One thing is certain: these wage increases are coming – and while on the surface the legislation may look like a positive for employees – the increases will force many employers to adjust their operations in order to keep their business running.

Scott A. Ohnegian, chair of Riker Danzig’s Labor & Employment Group, says it is important to keep in mind that in many instances, it won’t be just the lowest members on the pay scale that will see a wage increase.

“You can’t have someone with more seniority at the supervisory level making the same amount as an entry level person. The cost to the business is exponential – it’s not just the cost related to what the lowest income earners are taking home,” Ohnegian explains.

“This is the wage compression issue,” adds John R. Vreeland, partner and chair of the Wage & Hour Compliance Practice, Genova Burns LLC. “There is no entitlement to a higher wage, so the challenge will not be at the legal level. The challenge will be employee satisfaction. It is safe to expect disgruntled long-term employees as they see employees racing towards their higher wage rate in a fraction of the time it took them reach $15.”

Tim Ford, partner at Einhorn Harris, says that while people currently making more than $15 per hour may get a raise from their employer, it’s likely not going to be near the 78 percent increase from $8.85 to $15.

“If you are making, for example, $11.25 per hour today, you are not going to see an increase in wages [via this legislation] for years, but your spending power is [likely] going to be less. This will all trickle down through the economy in [the state]. This is one of the shortcomings in the law, because it doesn’t do anything to protect these types of employees,” Ford says. “Taking into account spending power and the cost of goods, these employees may not be realizing any gain at all. In fact, they may have less spending power than they had before the law changed.”

Vreeland says that wage compression will be unavoidable for many small businesses where supervisors and managers tend to make more, but not substantially more, than the employees they supervise and manage.

“Go to any small store in a mall and the manager or night supervisor likely is making just a few dollars more than the rest of the employees. As the minimum wage increases, it will push the lowest pay rates to the same rates supervisors are earning, eliminating the recognition for the supervisor’s additional responsibilities,” Vreeland says.

Employee Layoffs

“Some [businesses] will try to do more with less,” Vreeland says. “Right now, a small business may be able to afford two employees on the night shift at $10 per hour. But, paying them $15 may not make sense for the business. So, as the minimum wage rises, one employee will see a pay increase and the other may be shown the door.”

Ford explains that any time you are laying off employees, it increases the possibility of claims, whether it’s based upon age, race, gender or any other type of protected class.

“Most employers try to be cautious and evaluate what potential claims an employee may have. [Employers could consider] providing employees with some type of separation or severance pay. They aren’t lawfully required to, but it can be a potential way to avoid claims,” Ford says.

“We will also probably see an impact on the number of people seeking unemployment. This will have an impact on an employer’s experience rating with the Department of Labor. The more employees that you have on unemployment, the more you have to pay into unemployment benefits,” he adds.

For larger employers, Vreeland says that complying with certain termination related laws will be the key to avoiding additional legal issues down the road.

“Unless there is a contract or policy that requires a layoff notice, generally, a notice is not required unless 50 or more employees are laid off,” he says. “When this happens, employers must be mindful of the 60-day layoff notice required under the federal Workers Adjustment and Retraining Notification Act, known as the WARN Act, and New Jersey’s mini-WARN law.”

Other Areas to Consider

Unfortunately for employers, the options for how to best cope with increasing wages are rather limited.

“My clients are beginning to understand that this is just the cost of doing business now in New Jersey,” says Marissa Mastroianni, associate at Cole Schotz’ Employment Practice Group. “The law has been passed and there’s really nothing to do about it on the back end, so now it’s just about moving forward and adapting appropriately.”

For small businesses this likely means cutting back on hours, reducing overtime or raising prices, in some instances. Mastroianni says that the key focus for businesses is making sure the increased labor cost doesn’t negatively impact the overall business.

“The first thing businesses should do, especially smaller businesses, is review their books. Run the numbers to determine just how much of a financial impact these minimum wage increases will have,” Mastroianni says. In fact, this increased due diligence on the employer end could prove beneficial in other areas of the business.

“While employers are doing this, it is also a good idea to run pay equity analysis on their compensation numbers to ensure compliance with the Diane B. Allen Equal Pay Act,” Mastroianni explains, adding that if employers haven’t been thinking about the equal pay act, they should, and since they will be doing a self-audit of their books anyway, they might as well analyze both areas.

Vreeland adds that employee benefit contributions are another area that employers should review.

“Increased 401(k) contributions can be addressed [by employers] because that cost is within their control. [Employers] can amend their plans to require a lower contribution. But payroll taxes are not within their control and this will be another increased cost that ultimately will be passed on to the consumer,” he says.

It is also important for business owners to fully understand the language in the actual law to ensure full compliance based on the type of business one runs.

For example, Ohnegian points out that the perception that there is an exception for seasonal employees within the law can be a bit misleading. “The exception to the rule is not for seasonal employees – it’s for seasonal employers. That is, businesses that receive a huge majority of their income during a very short period of time,” he says.

Ohnegian explains that businesses that hire additional employees during busy seasons – think retail during the holiday season – would not count as seasonal employers.

However, if you had a snowplow business, and did work only during the winter months, your workers would probably qualify for a reduced minimum wage. Alternatively, if snowplowing was just one piece of your business, and, for example, you also did landscaping for the rest of the year, your employees wouldn’t likely qualify for any reduced wages.

At the end of the day, every business is different. The effects of the $15 minimum wage will impact businesses of all sizes in New Jersey to some degree, and it will be telling to monitor how the incremental increases impact the economy as a whole in the coming years.

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