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$15.00 minimum wage hitting the I-5 corridor

Author: Jan Fernandez    Posted: May 4, 2015

Is the $15 an hour minimum wage really what the public thought that they were getting?  And, how is it really impacting employers in Seattle and Tacoma?

First, I’d like to let you know that for today this blog is focused on Seattle.  I will have more to say on Tacoma once we more clear on what the heck is going on there.

Lots of employees were ecstatic when they learned that the voters passed the $15 an hour rule. However, their cheers quickly turned to jeers when they learned that their employers were changing the rules on how they got paid.  Some restaurants had to increase their prices and completely redesign their compensation structure to enable them to pay the new wage.  [Seattle Times] How did they appease their clientele? Well, they no longer allow tipping the service staff.  These employees, who were used to receiving sometimes in excess of $10 an hour in tips alone, making upwards of $25 an hour, are now caped at a flat $15.  Not so great for those employees.

But this is a benefits blog, not a wage and hour blog, so let’s see how this new ruling is impacting our clients who offer benefits. In the begining, employers thought “I can’t afford benefits and a wage hike, I’m throwing in the towel”.  But, fear not, there is some hope for our employers trying to do the right thing; we have what is called “minimum compensation”.  While all small employers (less than 500 W-2 wage earning employees) are required to pay what is called minimum compensation, they can get to it in two ways:

According to the Office of Labor Standards at the City of Seattle:

  1. HOURLY RATE

Small employers pay hourly minimum compensation rate based on the following schedule.

MINIMUM COMPENSATION

2015 (April 1) $11.00 /hour
2016 (January 1) $12.00/hour
2017 (January 1) $13.00/hour
2018 (January 1) $14.00/hour
2019 (January 1) $15.00/hour

 

So, how much can you reduce the total compensation to achieve both the minimum wage and offer benefits? The table below explains.

  1. TIPS AND/OR MEDICAL BENEFITS

Small employers pay an hourly minimum wage and reach the minimum compensation rate through employee tips reported to the IRS and/or payments toward an employee’s medical benefits plan.  If the tips and/or payments toward medical benefits do not add-up to the minimum compensation rate, the small employer makes up the difference.

MINIMUM COMPENSATION    MINIMUM WAGE

2015 (April 1) $11.00 /hour $10.00/hour
2016 (January 1) $12.00/hour $10.50/hour
2017 (January 1) $13.00/hour $11.00/hour
2018 (January 1) $14.00/hour $11.50/hour
2019 (January 1) $15.00/hour $12.00/hour
2020 (January 1) $15.75/hour $13.50/hour
2021 (January 1) $16.49/hour $15.00/hour

 

I focused my blog mainly on the small employer in Seattle (less than 500), because these are usually the privately held companies working hard every day to make it in our ever-changing world.  This compensation structure reminds me of prevailing wages for some unions.  An employee may make $25.00 an hour in prevailing wages, but a hypothetical $3.83 can be used towards benefits.  While employees may not think “taking some of their money” and using it towards benefits is a good thing, they need to realize that that bucket of fringe benefits money is now not tax-free because it’s being run through a Section §125 premium only plan document.

According to an article in Forbes, the restaurant industry may be taking the largest hit from the $15 an hour rule. [Forbes] Restaurants employ around 50% of all minimum wage labor and thus where the law will have the greatest impact.  Many just can’t take the hike and will be closing their doors this year.

Now back to benefits.  Employers need to know what options are out there for their businesses and effective ways to work benefits into their overall compensation strategy. It can be done!

We’ll talk about Tacoma soon – it’s right around the corner!

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