Employers Could Save Money with Increase in CA Minimum Wage

Reports in the media, trade publications, and even the guy on the corner have all predicted that the $20 cheeseburger is upon us due mainly because of the increase in the CA Minimum Wage on April 1st for Fast Food Workers. Here’s why that doesn’t have to be the case.

Almost all fast food employees are part-time and churn at a 100-200% rate year-over-year. Meaning, for the same position, the employer fills the role with 2-3 different employees per year. According to national statistics, most fast food workers are employed at 15-20 hours a week at most, work 2 jobs, and earn a total of $35,000 per year between both jobs.

Quick education on payroll tax: State Unemployment (UI) and Federal Unemployment tax (FUTA) are employer-only taxes paid on behalf of the employee up to a maximum of $7000 in wages earned per year. Let’s say an employer has the max UI rate in CA at 6.0% and the “standard” FUTA rate of 0.6% For one employee the business would pay $462 assuming the employee earned the full $7000 before being terminated. Assuming one position is filled and vacated 3 times each year, that’s $1386! I haven’t even quantified the time lost in training the replacement.

THIS IS PER EMPLOYEE !!! Imagine if you had 100 company-wide? the savings would be $92,400 ((1386 – 462) x 100) which would cover a portion of the increase in minimum wage.

Let’s face it, the employee working 2 jobs doesn’t want to shuttle between work locations; they want stability. What if…the employer increased the number of hours worked per employee thereby allowing the employee to work ONE job? This would reduce the additional UI and FUTA tax expense throughout the year because the employer is not replacing the terminated worker. The employer (i.e. the fast food restaurant you frequent) increases efficiency by retaining workers with knowledge about the operation and the employee can work just one job.

It’s utopia but we can dream…



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