State Minimum Wage Increases Lead to Rising Costs for Businesses

By Glenn A. Duhl, Esq.

Minimum-Wage-up-arrow-graphicThere are currently 29 states plus the District of Columbia whose state minimum wage is greater than the federal minimum wage of $7.25, which has not been raised since 2009. Effective January 1, 2019, 20 states and several cities will increase their current minimum wages, including New York state ($11.10), New York City ($15), Massachusetts ($12), New Jersey ($8.85), and Rhode Island ($10.50). Legislators continue to pursue ballot measures and enact laws with the goal of phasing in a $15 state minimum wage over the span of the next few years.

Proponents of raising the minimum wage argue that the higher rates are necessary to accommodate increased costs of living, income inequality, and poverty levels. However, business associations and employers argue that increased labor costs could slow growth, increase employee costs, and lead to fewer jobs.

Besides the increase in payroll costs, employers face higher matching amounts for social security contributions, state disability, unemployment, and workers’ compensation insurance premiums.

Profits can shrink in direct relation to minimum wage hikes. Businesses often cope by cutting operating hours, downsizing the workforce, reducing expenses and employee benefits, increasing consumer prices for goods and services, and moving away from expansion and inventory.

As one of the occupations with the highest share of minimum wage workers, the food service industry feels the effects of minimum wage increases more directly than many other industries.

In New York, wage increases are implemented at different times for different industries and regions, and often wage increases are implemented for the food service industry before other industries. For example, fast food employees in New York City will receive a minimum wage of $15/hour as of December 31, 2018. But, while employees of other businesses in NYC will earn $15/hour if their employer has 11 or more employees as of December 31, 2018, those who work for employers with 10 or fewer employees won’t see that raise until December 31, 2019.

There are regional differences as well. As of December 31, 2018, a fast food employee outside of New York City will earn $12.75/hour; a non-fast food employee in downstate New York (including Nassau, Suffolk, and Westchester counties) will earn $12/hour, and a non-fast food employee in the remainder of the state (outside of New York City and Nassau, Suffolk, and Westchester counties) will earn $11.10/hour.

Although the increase in minimum wage forces businesses in the service industry to grapple with increased costs before other industries, the higher wage makes it more costly and difficult for employers in other industries to recruit workers. One benefit for those business owners is that they can look to the food service industry for creative ways to deal with the increased costs.

For example, some restaurants have turned to new technology to compensate for the loss of labor and to reduce expenses, reducing the number of servers by placing tablets on each table that allow customers to place orders and pay bills directly. Others have switched to a counter-service model to decrease the number of servers required.

Finding innovative ways to combat increased labor costs will be beneficial for all business owners as labor costs will continue to increase in the coming years.

Glenn A. Duhl is a management-side employment and litigation lawyer at Zangari Cohn Cuthbertson Duhl & Grello P.C. Contact: (203) 786-3709; gduhl@zcclawfirm.com; www.zcclawfirm.com.

The information contained in this article is general in nature and offered for informational purposes only. It is not offered and should not be construed as legal advice.

image courtesy of The Restaurant Expert