For minimum wage employees, the recent passage of Prop. 206 represents an increase from $8.05 to $10 an hour, hopefully to put more jingle in workers’ pockets.
But to employers, particularly those on a tight budget like small business owners and school districts, the pay raise means a deep and unexpected hit to their operating expenses.
In the worst case scenario, some employers may resort to layoffs or reducing employees’ hours.
The Kyrene School District employs a large and diverse workforce of more than 2,000, so they felt the need to form an internal committee to consider options for equitable compensation—particularly among part-time employees, who received the extra pay hike, and other full-time people whose salary stayed the same, according to a presentation to the Governing Board given by district officials Dr. Mark Knight and Jeremy Calles. “It’s called salary compression because the bottom of the salary range was eliminated,” explained Calles, chief financial officer for the district.
“Most of the minimum wage jobs were students or other minors with limited work experience. Now due to Prop 206 the youth can earn the same pay as some adults with more experience.”
A few examples of job classifications that could be impacted are mail couriers, custodians and field maintenance workers. Calles explained that contracts to supply goods and services to the district also are likely to cost more due to the rise in wages.
“In the case of our food service vendor, their labor costs may increase 10 percent or more due to higher wages, and that cost will be passed along to their customers.”
Another facet to the new law is the requirement for employers to provide paid sick leave, even to part-time or temporary employees. So, to be in compliance with Prop. 206, even substitute teachers will benefit by earning one hour of leave for every 30 hours worked.
Calles mentioned that a possible solution would be to use a third-party employer, similar to an employment agency, to hire substitutes and other temporary employees.
Most voters who supported Prop. 206 could not anticipate the negative side effects this initiative would cause.
Initially, the pleas for a living wage made by retail-store and fast-food workers sounded reasonable – that is until you look at the total costs including the sick time, which could be called the unintended consequence.
Yet, unlike bills proposed and passed at the state legislature, there was no independent review, hearings or public comment process of the initiative language to inform voters of these inevitable problems.
Now, even if voters wanted these issues fixed, Prop. 206 can’t be modified because Arizona initiatives are bound by the strictest voter protection law in the country.
Once a measure is passed at the ballot, it can’t be changed unless it is sent back to the voters, and that can’t happen for two years.
So as Calles heads into budget season, he has another line item to add—higher wages that increase each January by 50 cents an hour until 2020. After that date, the rate of pay will be determined annually by the Consumer Price Index.
It’s something of a bitter pill for school district officials who have weathered tough fiscal times and balanced the budget—only to face the increased labor costs of Prop. 206.