Joel Murray Bellevue Regulatory Attorney

In February, I wrote about proposed legislation in the Washington State Legislature that would make employer-provided health benefits count towards minimum wage in Washington State. The proposed legislation, House Bill 2291, was not enacted during the previous legislative session, and its current status is “[R]eintroduced and retained in present status”.

Tangentially related to the above discussed legislation, and also discussed in the February blog post, is that Ballot Initiative 1433 would gradually raise Washington State minimum wage to $13.50, and starting in January 2018, require employers to provide employees with an hour of paid sick leave for every forty hours worked. Assuming that an employee worked 40 hours per week for 48 weeks a year, this would amount to six days of paid sick leave a year.

Ballot Initiative 1433 obtained the required number of signatures, and was certified for the ballot in July of this year. Subsequently, Initiative 1433 passed with over 57% of Washingtonian voters supporting it, a significant majority for a ballot initiative.

The gradual increase in minimum wage will commence on January 1, 2017 with minimum wage increasing to $11.00 per hour. Next, on January 1, 2018, minimum wage increases to $11.50 per hour. On January 1, 2019, minimum wage increases to $12.00 per hour. On January 1, 2020 minimum wage increases to $13.50 per hour. Thereafter, the $13.50 minimum wage is increased or decreased based on the Consumer Price Index (annual rate of inflation or deflation).

The gradual implementation of Initiative 1433 gives employers of all sizes the opportunity to plan and prepare for the increased cost of doing business. At present, minimum wage in Washington State is $9.47 per hour. Assuming that a full-time minimum wage employee works 40 hours per week, 48 weeks per year, the cost of Initiative 1433 for one minimum wage, full-time employee compared to 2016, will be the following:

Year Wages Paid Leave Cost Increase From 2016 Cost Increase Percentage From 2016
2016 $18,182.40 $0.00 $0.00 0.00%
2017 $21,120.00 $0.00 $2,937.60 16.16%
2018 $22,080.00 $552.00 $4,449.60 24.47%
2019 $23,040.00 $576.00 $5,433.60 29.88%
2020 $25,920.00 $648.00 $8,385.60 46.12%

 

By 2020, the cost of employing a single, full-time, minimum wage employee (see above for hours worked) will increase by 46.12% compared to 2016. Crucially, the minimum wage does not include tips or gratuities. The City of Seattle’s implementation of an increased minimum wage caused resulted in changes in the hospitality and/or restaurant industry.

In 2014, the City of Seattle enacted a $15 minimum wage that is to be gradually implemented. Proponents of Initiative 1433 claimed that it would not result in decreased employment for minimum wage and low-skilled workers, citing the City of Seattle’s passage and gradual implementation of a $15 minimum wage in 2014.

However, a non-partisan, independent study performed by the University of Washington on the effects of the increased minimum wage showed mixed effects on the employment of minimum wage employees. There is significant concern about the effects of the recent technological and building boom in Seattle overshadowing the effects of the increased minimum wage.

Empirically, the increased minimum wage in Seattle caused a number of restaurants to increase their prices and/or doing away with tips and gratuities. Restaurants throughout the state may also begin implementing similar measures following the passage of Initiative 1433. Other industries likely to be affected by an increased minimum wage are grocery and retail stores, fast and casual dining restaurants, lawn and landscaping services, and other industries that rely upon low-skilled workers who earn minimum wage.

Given the 46.12% cost increase by 2020 of employing a full time, minimum wage worker, many businesses appear poised to invest in technology where doing so would remove the need for a minimum wage worker, and the cost is less then increased cost of employing someone.

Only time will tell what the effects of Initiative 1433 will be on the labor market in Washington State. However, in era of outsourcing and automation, with driverless cars purportedly on the horizon, it appears more crucial than ever that the labor force in Washington State develop medium- and/or high-skills if they wish to be employed and/or economically viable. Given the increased labor costs on the horizon, businesses that employ minimum-wage workers would be prudent to evaluate capital investment and/or automation to replace or minimize their need to employ minimum wage workers.

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