At the end of May, the California Assembly passed AB 10, which raises the hourly minimum wage. Originally, the bill would have increased the minimum wage from $8 to $9.25 by January 2016, with automatic increases every year thereafter tied to the Consumer Price Index (CPI). After passage in the Assembly, the bill was amended to remove the automatic increases, but additional increases in 2017 and 2018 were added. Under the amended version, the minimum wage in California would rise to $10.00 by January 2018 – a twenty-five percent increase in just five years.
On June 26, the Senate Committee on Labor and Industrial Relations approved the amended legislation, moving the bill closer to a vote in the Senate. Given the strong backing from organized labor and large Democrat majority in the Senate, chances are the bill will be approved and sent to Governor Brown before the legislature recesses in September. The Governor’s office has not yet signaled whether he will sign or veto the bill, but Brown will be under heavy pressure from his allies to put his signature on AB 10.
Outside of the restaurant and retail industries, the majority of employers pay above the minimum wage. All employers will feel the effect of the AB 10 increases, however, because it will create compression issues between newly hired workers and experienced, skilled workers. Given the continuing cost pressures and a slow economic recovery, most employers will have difficulty matching or even nearing the 25% increase mandated by AB 10. Forward-looking employers should start considering the compensation and employee relations strategies for dealing with these issues as AB 10 moves closer to adoption.