Preparing Your Budget and Property For Minimum Wage Hikes
Wednesday, September 12, 2018

Section: News

By David Herrera, CAM Services

California’s minimum wage law (SB 3) phases-in from 2017 through 2023, when the minimum wage reaches $15.00 per hour statewide.  Increases occur on January 1st; however, there are exceptions to this rule as cities or counties have increased minimum wage on July 1st or via a different, higher metric known as prevailing wage.
The wage inflation we are experiencing is steep and will be sustained for the next few years.  The days of vendors asking for annual budget increases tied to CPI (sometimes lower than 2%) or no increase at all are over until economic equilibrium is reached after 2023.
How the minimum wage will impact your property
Budget: The increase in minimum wage from $11.00 to $15.00 per hour over the next four years is 36.4% or 9.1% averaged annually -- expect your vendors to pass this increase through to you.  Remember, the $1.00 increase goes to the employee – the contractor still must pay payroll taxes, workers’ compensation insurance and other burdens on top of the $1.00, which adds an additional $0.30 to $0.50 per hour to their costs.
Service level: Be prepared to pay higher rates or negotiate new, possibly reduced scopes of work that are in-line with your budget.  Partnering with innovative vendors is essential to preserving your property’s condition when you’re working with a tight budget.
Tenants: Your tenants will be doubly impacted, as they will be paying higher CAMS and paying their own employees the increased minimum wage.
Legal risks: State law may hold you responsible for your contractors’ wage and hour violations, so it is in your best interest to ensure your contractors’ employees are being paid properly and your service agreement protects your assets’ and stakeholders’ interests.  Consult with your corporate attorney to review all associated risks.
Geography: consult the city’s website where your property is located to verify if it is governed by a different set of wage and hour rules.
The long-term impact of this minimum wage law on our industry and economy is unknown, but the short-term will be fiscally shocking and bumpy.  Suggestions for managing this impact: accept and understand it, then devise strategies with your stakeholders (landlord, tenants
and vendors) to keep your property running smoothly, on budget and yielding financial returns.

*chart is for employers with 26 or more employees
2018 $11.00 5.0%
2019 $12.00 9.1%
2020 $13.00 8.3%
2021 $14.00 7.7%
2022 $15.00 7.1%
For more information on the statute, link