(June 23, 2005) California Chamber of Commerce-opposed legislation to increase California's minimum wage to the highest in the nation – imposing over $9 billion in new costs on employers - passed the Senate Labor and Industrial Relations Committee yesterday.

“California currently has the nation's highest energy costs and unemployment insurance tax rates for businesses,” said Julianne Broyles, director of employee relations and small business. “An increase to the minimum wage would be another cost driver hurting California’s economy just as we are on the road to recovery. Further, giving California the highest minimum wage in the nation will provide a disincentive for employers to locate or expand here.”

AB 48 (Lieber; D-Mountain View) is on the annual ‘job killer’ list because it provides a significant disincentive for employers to create jobs in California by giving our state the highest minimum wage in the country. This bill increases the cost of doing business by over $9.06 billion annually by raising the state minimum wage to $7.25 in 2006 and to $7.75 in 2007, and indexing increases every year thereafter. Similar legislation was vetoed by the Governor last year.

Increase Cost for Employers
When AB 48 was originally introduced, the Chamber estimated the cost on employers would be $2.08 billion annually, which was directly related to the mandated wage increase.  But, this bill also affects managerial and other exempt worker salaries due to the 1999 enactment of AB 60 (Chapter 134). 

That statute recast California overtime law and permanently linked the threshold for classifying salaried executive, administrative, and professional employees as exempt to the state minimum wage. As a result, AB 48 also mandates a $6.98 billion wage increase for 1.6 million exempt workers.

In other words, to be exempt from state overtime requirements, executive, administrative, and professional employees must earn at least two times the state minimum wage for full time employment, as well as meet a detailed duties test.  This means that any salaried employee who makes less than $28,080 per year today must be classified as a nonexempt salaried employee.

AB 48 proposes to increase the exempt worker annual base salary requirement by $4,160-to no less than $32,240 per year.

Economic Impact
On top of the $2.08 billion increase in direct minimum wage payment, AB 48 would also force an increase in exempt worker wages in California by $6.98 billion in order to meet the California's exempt worker base wage test.

According to the Employment Development Department, there are more than 1.6 million exempt workers in California that would be directly affected by AB 48's mandated  $4,160 annual wage increase.

Further, business costs such as workers' compensation, health care premiums and other employment related taxes all go up whenever payroll costs increase.  If AB 48 were enacted, workers' compensation costs for employers of minimum wage workers would rise by an additional $120 million ($120,000,000) annually, according to estimates by the Workers' Compensation Rating Bureau.

Key Vote
The Senate Labor and Industrial Relations Committee passed AB 48 on a party-line vote of 4-3.

Ayes: Alarcón (D-San Fernando Valley); Dunn (D-Garden Grove); Kuehl (D-Santa Monica); Lowenthal (D-Long Beach).

Noes: Campbell (R-Irvine); Runner (R-Lancaster) and Ackerman (R-Tustin).

Action Needed
AB 48 will next be heard by the Assembly Appropriations Committee.  The Chamber is urging all employers to send letters opposing AB 48 to committee members.  A sample letter is available on the Chamber website.

For more information on AB 48 or for up-to-date information on all “job killer” bills, please visit the www.calchamber.com/jobkillers.