California operator braces for planned $15 minimum wage

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Update: California Gov. Jerry Brown signed S.B. 3, passed March 30 by both houses of the state legislature, on April 4.

One of California's largest senior living operators is planning changes in the wake of Gov. Jerry Brown's March 28 announcement of a deal with legislators and labor leaders that will make the Golden State the first to commit to a statewide minimum wage of $15 per hour — and that company no doubt is not alone.

“This plan raises the minimum wage in a careful and responsible way and provides some flexibility if economic and budgetary conditions change,” Brown said in a statement.

Terese Juntz, senior vice president of human resources at American Baptist Homes of the West, however, told McKnight's Senior Living that the company will experience “significant” labor cost increases of more than three times normal pay increases. “I share the same concerns as LeadingAge California about the impact of minimum wage increases on wage compression, inadequate reimbursement from Medi-Cal and the effect on nonprofit providers with slim operating margins,” she said.

The $250 million ABHOW currently operates in its home state of California and five other states. Last July, the company announced a planned merger with the $150 million be.group. Once the merger is final, the combined entity is expected to be the largest senior living organization in California and the sixth largest in the country, with more than 3,500 staff members serving more than 10,000 residents in more than 80 communities. In light of Brown's announcement, Juntz said, “ABHOW is considering ways to improve efficiency and restructure jobs to deliver increased value. We are also considering adjusting our total reward philosophy to emphasize wages over benefits.”

It's a path other senior living organizations may follow as other cities and states look to increase their minimum wages. Fourteen states increased their minimum wages on Jan. 1, with two additional states on track to do so later this year. Earlier this month, Oregon set in motion a plan to increase its minimum wage over the next six years. By 2022, it will be $14.75 inside the urban growth boundary of Oregon's largest city, Portland, $13.50 in midsize counties and $12.50 in rural areas.

Under California's plan, the hourly minimum wage will increase to $10.50 per hour on Jan. 1, 2017 for businesses with at least 26 employees, and then it will increase each year until it reaches $15 per hour in 2022. The plan allows employers with 25 or fewer employees an additional year to start phasing in the increases, with the minimum wage for them reaching $15 in 2023.

The legislation contains a provision to pause wage hikes if negative economic or budgetary conditions emerge. The governor can act by Sept. 1 of each year to delay the next year's wage increase for a year if there is a forecasted budget deficit of more than 1% of annual revenue or poor economic conditions, defined as negative job growth and retail sales).

Once the minimum wage reaches $15 per hour for all businesses, wages then could be increased each year up to 3.5% (rounded to the nearest 10 cents) for inflation as measured by the national Consumer Price Index.

The plan also phases in sick leave for workers who provide in-home care for older adults and the disabled, starting in July 2018. Workers would receive one sick day at the start and ultimately would receive three days.

Brown signed AB 10 in September 2013 to raise California's minimum wage 25%, from $8 to $10 per hour, effective Jan. 1, 2016. The state already has one of the highest minimum wages in the country. Approximately 2.2 million of the 7 million hourly workers in California earn the minimum wage, according to the governor's office.

The California Chamber of Commerce Board of Directors said it opposed the effort to increase the state's minimum because employers there already face cumulative costs, including high personal income taxes, high sales tax rates, medical costs, workers' compensation costs, litigation costs, energy costs and water costs/restrictions. In reference to the sick leave provision, CalChamber said that employers continue to struggle with implementing the the current paid sick leave mandate, and the board also expressed concerns related to increased state costs.

Georgette Bradford, a member of the executive board of the Service Employees International Union – United Healthcare Workers West, however, said that the deal in California will “lift up millions of workers and their families who struggle to survive every day.” Raising the minimum wage will help more than 3.3 million workers and their families, including 200,000 senior citizens who work, according to the union.

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