Who pays the increase in the minimum wage?

The minimum wage is the amount paid to an employee per hour of labor. The Federal Minimum wage is $7.25 per hour, the State of California has a minimum wage of $13 per hour (fewer than 25 employees), and $14 (25 or greater employees). The ‘living wage’ is a theoretical wage that allows an individual adequate shelter, food and necessities often used in higher-priced cities. The council has just voted a new living wage for hotel workers of $17.63 per hour and has indicated it will approve a new minimum wage that exceeds both the State of California and City of Los Angeles. Previous studies have shown that up to 80% of those who live in West Hollywood work outside of the city limits, and conversely up to 80% of West Hollywood’s work force are not residents of WeHo.

It’s important to begin this discussion with knowledge that ‘salaried employees’ are required to receive double the minimum wage as their ‘base’ pay. And it is important to note that the employer will also pay an additional contribution on all hourly and salaried employees in the form of taxes. Expenses that rise with the increase of pay include employer withholding matching funds, unemployment insurance, medical insurance, workmen’s compensation. Those can add an additional cost to the employer of as much as 30%.

As an owner of a local retail shop I will make a public disclosure. These increases do not affect me or my staff. All my staff is paid well above the minimum wage and beyond all that is proposed to be implemented. You see, the employer does not need the city council to motivate employees or employers.

One might say, all the hotel rooms are so pricey! Whole Foods is a whole paycheck! Or what about those $20 Martini’s? Well, let’s break it down. Each product sold needs to pay the rent, the labor costs, and the cost of the goods sold, plus a wage for back staff, managers, and the owners of the business.

Hypothetic example: A local pizza place pays $10,000 a month rent, or $333 dollars per day. The business is open an average 16 hours per day with staff but only 12 hours generate any revenue. There is a cook and a cashier, together making $40 per hour or about $55 with the additional taxes, and workmen’s comp. The rent is $28 per hour. Together with no profit or cost of goods the expense is $83 per hour. In my book that business needs to do over $200 per hour to break even. That employee needs to turn a profit of $10 every 15 minutes. At $5 per slice you need to ring up at least one slice almost every minute of the day. There is little room for low-ticket items in a high rent, higher labor cost environment.

So I asked David from Z-pizza his thoughts, read him the above statement and he said: ‘We are still trying to recover from the pandemic, the focus is wrong, we are in survival mode, nobody can afford this right now, cross this bridge later, down the line, we’ve not recovered, we have a whole year of back rent to pay, especially restaurants, and what % of West Hollywood is restaurants, is this whats best for West Hollywood? I don’t want to get into specifics or costs or politics, but this is really premature or ill-timed. This is not something the workers are screaming about, this is more about the council wearing a progressive badge, the highest wages in the country, but if you want to talk about jobs there are no wages without jobs. It is not what is best for West Hollywood.

What about a local yogurt shop that pays $300 dollars a day in rent? One employee for half the day and two for the peak period. Let’s say open 12 hours a day noon to midnight. That is $25 hour in rent, $360 a day in payroll or $30 an hour. (to break even), – That is $55 per hour profit to cover just labor and rent. Add in cost of goods sold, perishables, and other overhead and Id guess one would need to sell a yogurt a minute to hit the $200 an hour break even point. Thats all day every day. And thats to break-even. It’s not easy being in business these days.

So I called the Yogurt Stop girls and read them the above and asked their thoughts. Marta replied: “Everything is going up, cost of goods, dairy, toppings, plastics, and papers, aluminum, lids, everything is going up. And this is not about employee’s complaining – it sounds like politics. Then Marta’s partner Shoshana chimed in – we are going to have do more of the hours on our own, and go from 3 employees down to 2. It doesn’t create jobs. It does the opposite. How does somebody in high school with no experience get a job? In Australia, to give kids experience the minimum wage is lower and takes into account the age bracket. High school kids are able to get experience. So that gets the economy moving and allows the kids to gain experience with starter jobs.

The ‘tipped’ economy is a big part of West Hollywood. I decided to ask around to understand the way some of the bars and restaurants handle those tips. Some bars allow the servers to keep their tips. Others use a pool method. One local establishment general manager explained it this way: “Every 2 weeks my main servers are getting checks of about $0 net dollars. (tips generated off the credit cards pay the taxes). The ‘payroll check we provide ‘pays the taxes’ so in a way they live on their tips. But – other establishments used a ‘pool method’ and the house splits the tips. If the minimum wage rises too high the odds are that most establishments will move to a ‘pool based’ tip system and the ‘house’ will be in control of the employee’s tips. The worker will lose in the long run. There is lots of independence in an employee keeping their own tips without having to share their earnings with the house.

One of my neighbors who chose to lay low explained it this way: For bartenders, 99% of the time, if they work 60 hours, their net check is zero dollars — because whatever their net pay gets reduced to zero because of taxes on their tips. Low end each bartender makes $300-$1,000 a night per bartender. Raising the minimum wage is going to cause us to raise the price of drinks, food prices go up, cover charge goes up. This minimum wage is not good for the nightlife economy. A lot of us bars raised our prices upon reopening, we needed to bounce back and now they are going to slap us with a higher minimum wage.

How about the dancers who work at the clubs throughout the city? Most of the dancers, DJs, are independent contractors and get a 1099 at the end of year. The cost of dancers will increase. To offset the cost of the contract dancers they may have to have one less dancer per shift. On the opposite end of the hourly wage are the salaried managers. Salaried employees make double the minimum wage so those costs will go up. One manager of a local bar told me that his bartenders ‘already make more then me.’.

Another local manager of a bar replied to my inquiry about the effect of the minimum wage on their establishment: “The city is good at initiating these laws but why don’t they do a vaccine mandate and set up 4 vans along Santa Monica Blvd, have a centralized place get a wristband and proof of vaccine. The costs of mask mandates are on us too. Starting in September the bars have to check vaccines, we are already trying to clear the congestion on the street and we have to have more staff. And the cost of product is up, the tequila companies, there’s no glass bottles, beer companies are short on aluminum cans, and that’s forcing the prices up too. This is not the time to institute wage increases. How about we focus on the homeless, or at 7 or 8 pm you cant walk down the street on the eastside without being attacked by a homeless. What is the city doing? The city is good at putting all these laws and ordinances but what are you doing to help us!

It’s going to really hurt us. Imagine the small businesses mom and pop shop – only the big box will survive, Starbucks will be fine, McDonalds will be fine. But the smaller mom and pops are what make our economy thrive and unique.

Those hotel rooms in West Hollywood are too expensive! Yes say some. Now let us ad the cost of the hotel worker ordinance and increased minimum wage. The square footage limitation, plus double the day pay for more than 8 hours of work changes the business model. Formerly many hotels employed ‘runners’ to keep the housekeepers moving on each floor. But the ordinance does not allow for ‘runners’ and the housekeepers now will have to do all of the housekeeping for each room. A West Hollywood hotel room averages 700 square feet. There is a 3500 square foot maximum rule per the hotel ordinance, that means any single worker caps out at 5 rooms in an 8 hour day. The pay is $20 per hour, plus the employer matching funds so a total cost of $28 per hour to employer. 5 rooms, or $140. The cost to the customer is just shy of $30 per night for the cleaning service. (not including amenities, towel clean and more). Add in costs to own the property, rising taxes, and hotel rates will be even higher. But, whats an employer to do? If I managed a hotel I’d offer a free breakfast if the customer checks the box that says they choose to forego their room clean. Pitch it as ‘going green’, and then need less housekeepers. The cost of over 8 hours or double the day pay is so severe Id have to employ twice the amount of housekeepers and only schedule a 6 hour day. So the bottom line is that the ’cause and effect’ may not benefit these hotel workers. Some might need a second job if they are working shorter shifts, less rooms, and less tips. But to you or I or our friends who visit ? You will need to stay outside of West Hollywood for any moderately priced hotel.

And what about those grocery store workers, and the $5 an hour hazard pay that the supermarkets in West Hollywood are forced to pay by the new city council? Do you see more employees or registers open at Gelson’s? or Pavilion’s? Are the prices going up? Increases in minimum wages and living wages are passed down to each and every aspect of the business with higher prices on every single item. Rising commodity prices and an inflationary environment hurt those living on fixed incomes and seniors the most. Its hard to age-in-place and then vote to increase the costs to the ‘highest in the nation wage rate’ that affects every single business and resident in the city. Also it puts West Hollywood at a competitive disadvantage to our neighboring cities in cost of living, or cost of doing business.

A recent affordable housing developer came before the city council to explain that one affordable housing unit now cost $750,000 to build. So what is a market rate unit cost to build one might ask? The raise in the minimum wage to a living wage and minimum wage is now required from all who do business with the City of West Hollywood. And thats why it cost $85,000 to paint a rainbow crosswalk and 250 million dollars to build a park.

Changes to the hourly wage affect all workers. Salaried employee must make double the minimum wage. So if the minimum wage goes for $15 to $20 per hour, salaried workers would need to make $40 per hour, or a minimum $1600 a week or more than $80,000 per year. The net result has to be rising costs across the entire business model.

Milton Friedman, a noble prize winning economist stated “Inflation is taxation without legislation.” Inflation hits the middle class and the poor the most. Or perhaps it’s like this, inflation is a $15 hamburger that used to cost $10 and before that cost $5. As this City Council begins to advocate the highest minimum wage and living wage in the region many of us will be paying those rising costs all around us. The residents will be the most affected.

Oh! And let’s not forget that the City Council proposed a ballot initiative to raise the West Hollywood sales tax to 10.25% . West Hollywood has the highest sales tax in the region too.