How The Minimum Wage Is Set
While minimum wage law seems like it should be simple – a set number of dollars per hour – it’s actually subject to a tangle of federal, state, and local laws. If the applicable federal, state, and local laws vary, then employers typically have to pay the highest wage mandated by the laws. For example, the federal minimum wage is $7.25 per hour. California’s minimum wage is higher than that, so employees in California get the benefit of the higher wage. If California set its minimum at, say, $5 per hour, then employees would get the benefit of the higher federal wage.
In addition to the multiple sets of laws for the general minimum wage, there are also a variety of laws governing the wages for tipped employees and trainee employees. Under federal law, for example, employers have to pay tipped employees at least $2.13 per hour and the employees must make at least $7.25 per hour. If they don’t earn enough tips to get to $7.25, the employer is required to make up the difference. In California, on the other hand, employers are required to pay tipped employees the full minimum wage, regardless of the tips they earn.
So where does the minimum wage law come from? How do we decide what the right amount is? The federal minimum is set by Congress – it doesn’t change with inflation or any other measure. Only Congress can raise it. Most state and local minimums operate the same way and can only be changed by the state legislature or local government. This means that even if the price of living increases dramatically, a minimum wage increase is not guaranteed.
Raising The Minimum Wage In California
Workers across the country have been protesting and striking to demand a higher minimum wage, and they’re starting to see results. There have actually been 2 laws passed recently to bump up the minimum wage. The first affects only Los Angeles. On July 1, the minimum in Los Angeles will go up to $10.50. After that, regular increases will push that rate higher until it reaches $15 per hour by 2020.
In addition to the LA-specific law, wages across California are going up. Earlier this year, Governor Jerry Brown and state legislators reached a deal to bring the minimum up to $15 an hour by 2022 across the entire state. If you’re working 40 hours a week, 50 weeks a year, that puts you at $30,000 per year. After 2022, the minimum will rise by 3.5% every year to keep up with inflation.
Under both new laws, businesses with fewer than 25 employees have an extra year to give each raise. For example, a Los Angeles-area business with 5 employees doesn’t have to pay $10.50 per hour until July 1, 2017.
What Does This Mean For Workers?
If you’re earning minimum wage, it means you’re in for regular raises for the next 6 years. It’s not optional – your employer is legally obligated to pay you at least the minimum wage. The wage issue is always a hot topic for debate, with workers on one side arguing that they can’t live on the current minimum and businesses on the other side arguing that they’ll have to raise prices and lay people off.
Experts say it’s particularly difficult to predict whether this raise will result in the loss of jobs, since this is one of the largest hikes in history and will result in one of the highest minimum wages in the country. There’s simply no way to guess what that’s going to mean for local businesses and workers.
Officials say the wage hike will affect more than 5 million workers in California. However, not all low income workers will benefit. Independent contractors and those who work in the gig economy – like Uber drivers – aren’t protected by minimum wage law.
The Bottom Line
We’ve talked before about how pricey it is to live in LA, and an increase in the minimum wage is going to make life easier for a lot of workers in the area. In less expensive parts of the state, the impact will be even more extreme. More money in your pocket every month means it will be easier to meet your expenses, off your debts, and get financially healthy.
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