Wednesday, September 17, 2014

California Club: A Triple-Decker 56% Labor Cost Jump

California Club: A Triple-Decker 56% Labor Cost Jump 

When regulations knock out business, the whole economy suffers.


Diners don’t want sandwich-makers sneezing on their turkey, so there’s an obvious logic to California’s new law mandating three paid days of sick leave.

But as California piles up the costs of employing low-wage workers with paid sick leave and a higher minimum wage, employers also face another large cost spike via ObamaCare.

From June 2014 — just before California bumped up the minimum wage from $8 to $9 an hour — to January 2016 (when the minimum wage hits $10), the cost of employing a 40-hour-per-week minimum-wage worker could rise as much as $4.82, or 56%, to $13.43 an hour, an IBD analysis finds.

That includes $2.15 in more wages and Social Security and Medicare taxes; an additional 13 cents for sick leave; and a potential ObamaCare penalty equivalent to $2.54 an hour in wages.

Fewer Jobs, Hours

One big risk is that industries employing a primarily low-wage workforce will hire less. That’s the prediction of the Congressional Budget Office, which has said the combination of ObamaCare’s employer mandate penalties and a hike in the minimum wage to the $10 range would cause more job loss than a higher mandated wage by itself as employers find it more cost-effective to replace workers with technology.

The other risk is that employers will keep workers’ hours below 30 per week — full time under ObamaCare — to dodge a big part of these new costs.

Restricting workers to 29 hours per work would avoid ObamaCare employer penalties and limit the compensation increase to a still-hefty $2.32 an hour, or 27%.

Interestingly, Bureau of Labor Statistics data show that big minimum-wage hikes have been passed in four of the five states seeing the biggest year-over-year drop in the average workweek among leisure and hospitality workers.

Inhospitable Wage

Those states are Vermont, where average work hours in the sector fell 4.7% from a year ago in July; Connecticut (-4.1%); Delaware (-3%) and Maryland (-3%).

Evidence of an ObamaCare impact in depressing the workweek is piling up. In private industries paying up to $14.50 an hour, rank-and-file workers are clocking the shortest workweek on record, just 27.3 hours.

Further, the number of workers clocking hours just above the 30-hour-per-week mark has plunged relative to those with workweeks just below it.

The employer penalty for each full-time worker who receives ObamaCare exchange subsidies in 2015 will be $3,120. Penalties are assessed based on the work hours during a measurement period in 2014, so employers have had an incentive to act in advance to limit liability by reducing work hours.
Because the fine is nondeductible, it is the equivalent of $5,132 in deductible wages for a company facing a combined 39.2% state and federal tax rate.

That breaks down to $2.47 per hour for a 40-hour-per-week, year-round worker, and the penalty is on track to rise at least an additional 3.2% in 2016.

Large firms are penalized if they don’t offer coverage to the vast majority of full-time workers (that fine is $2,080 per full-timer in 2015). But to limit penalties, firms can offer skimpy or unaffordable coverage and pay a larger fine ($3,120) only for each full-time worker who opts for ObamaCare subsidies. Depending on household size and income, some full-time minimum wage workers — even a higher minimum wage — could qualify for Medicaid, in which case employers would be spared a fine.

California’s new sick leave law requires 24 hours, or three days, of paid time for employees who work enough hours. But the legislation was revised to exclude home health care workers from the mandate because it would have reportedly cost the state $80 million per year.

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