How a Minimum Wage Hike Would Impact California Small Businesses

Date: February 16, 2015

Senate Bill 3 would increase wage to $13 in 2017.

Minimum wage increases were hotly debated nationwide in 2014, and now the issue is on the table again in California with Senate Bill 3, which would increase the state’s minimum wage to $11 in 2016 and $13 in 2017, as well as index it to inflation thereafter.

NFIB/California strongly opposes this bill.

“In order to support any kind of minimum wage increase, small employers would be forced to make some very difficult decisions—either lay off employees and provide the same amount of products and services for less, or raise their prices, risking a dip in sales when consumers can’t afford to patronize their local small business,” says John Kabateck, NFIB’s California state director. “In California, small business owners already have to contend with some of the highest taxes in the nation, and adding any additional burden would be devastating.”

In San Francisco and Los Angeles, where officials have already approved wage increases, Kabateck says studies have shown that workers experienced reduced hours and layoffs and that it has also become much more difficult for inexperienced or unskilled workers to find jobs.

And for small business owners simply trying to stay afloat after the recession—like Ann Kinner, owner of Seabreeze Nautical Books and Charts in San Diego—a wage increase would only put recovery further out of reach.

“We’re all struggling at this point, and any increase in costs hurts,” says Kinner, who has been instrumental in fighting San Diego’s minimum wage battle. “While the people who want a higher minimum wage speak about how it will increase economic activity in the region, the truth is it will only transfer dollars out of my pocket and into the pocket of someone else, with no net increase in either productivity or dollars brought into the economy. Small employers, and even larger employers, will have less to spend while unskilled, low-wage employees will have a little more, but still not adequate to support a household, which the minimum wage was never intended to do.”

Key Facts

For every dollar the minimum wage is increased, it costs an employer $2,300 in wages and taxes—plus unemployment insurance, workers’ compensation and other wage-based compensation costs—for each full-time employee.

Payroll is a fixed part of a small business’ budget, and adding mandates doesn’t change that; it just means small businesses will pay fewer people the higher wage and decreases their incentive to grow.

California law requires exempt employees’ salaries to be at least twice what a full-time minimum wage worker makes, so wage hikes increase costs across the board for employers.

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