Keep It Legal
Retailers say minimum-wage increase will have minimum impact
When California’s minimum wage increased 75 cents to $7.50 an hour on Jan. 1, many retailers, including Fred Levine, said they would not be affected.
“The minimum-wage increase will not raise my prices or my wages,” said Levine, who co-owns the M.Fredric chain of contemporary stores, based in Agoura Hills, Calif. “We pay above that level and always have.”
California’s wage increase is the first of two legislated. A second increase of 50 cents to $8 per hour is scheduled to go into effect in 2008.
Levine and other retailers—including Shane Wallace, president of the Chino, Calif.–based Active chain of surf, skate and fashion boutiques—said they have not encountered any manufacturers who said they will raise their wholesale prices because of increases in the minimum wage.
However, some manufacturers said the wage increase will force them to raise their wholesale prices. The higher prices might put retailers in a bind, according to Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.
“People will try to pass cost increases if they can,” Kyser said. “But it’s going to be made difficult by the expansion of cheap, fast fashion of MNG By Mango, Zara and H&M. It puts a lid on how much people can raise prices.”
The minimum-wage increase will not affect retailers’ profitability or prices in the long term, according to Raymond Sfeir, a professor of economics at Chapman University in Orange, Calif.
Businesses contending with a greater number of minimum-wage workers, such as restaurants and hotels, will be more highly impacted at the present time. Companies employing minimum-wage workers may have to increase prices in the short term because their current budget may not cover the new wages.
Wage claims could increase
The new wage law should not affect the number of wage claims filed with California’s Department of Labor Standards Enforcement in the long run, said Dean Fryer, a spokesperson for the agency.
“It’s possible we could see an increase in wage claims this month—there’s been an increase in attention given to this issue because it is a new law,” Fryer said. “I can’t imagine the number of wage claims filed would fluctuate greatly.” The DLSE handles 48,000 to 52,000 wage claims each year.
Still, any greater focus on wage issues has the potential to increase attention on Fair Labor Standards Act lawsuits, which litigate the often-contentious issues of wages and hours worked, said Karl Lindegren, a labor attorney with the Irvine, Calif.–based offices of Fisher & Phillips’ retail industry practice group.
These suits are a growth industry in the legal field. Wage and hour lawsuits being litigated have skyrocketed more than 115 percent from 2000 to 2005, according to reviews of legal search engines Pacer and Courtlink.
While many retailers settle wage claims with the DLSE, companies that choose to litigate can often end up paying high awards. For example, electronics retailer Radio Shack paid $30 million for wage claims. Drug store Rite-Aid paid $25 million over the past few years.
The fight for the minimum wage is far from over. In addition to the slated second minimum-wage increase set for next year, legislation is in the works for further increases. On Dec. 5, California State Assemblyman Mervyn Dymally wrote Assembly Bill 71, which seeks to put into law an automatic adjustment of minimum wage every Jan. 1. This adjustment, known as indexing, would be calculated by multiplying the minimum wage by the previous year’s percentage of inflation.
Be prepared
The laws defining wages and hours can be complex, and Lindegren suggested some tips for retailers to avoid lawsuits.
“No. 1, determine whether you are in compliance or not,” Lindegren said. “Ensure that you pay people correctly, and keep good records. Wages are not a matter that people can ignore anymore.”
bull; Classify employees correctly. Many entry-level employees are classified by the California state government and federal government as hourly employees, which means that they are entitled to overtime. Under federal and California law, retail sales workers can be classified with the retail sales exemption, which means that they can be exempted from overtime. Retail sales exemptions typically earn at least 1.5 times the minimum wage for every hour worked. Lindegren said the lower-paid commissioned sales employees are often classified as hourly wage.
bull; Classify managers correctly. A contentious issue is how the exemption for managers, called the executive exemption, can be defined. By law, a manager is considered someone who spends more than 50 percent of his or her time in management duties. Recent litigation has considered whether retail employees such as assistant store managers could be classified with the executive exemptions.
bull; Keep excellent records. Yet, the way a company keeps records can often be as unique as the business. Small businesses may require nothing more than time cards. Large companies often use computer software such as Kronos to keep records of employee hours, according to Lindegren. No system is perfect, and managers must always test their record keeping to ensure it is accurate. Many questions on compliance can be settled by doing an audit of a company’s payment plan, according to Lindegren. Companies also can gain basic information from Web sites such as California’s Division of Labor Standards Enforcement (www.dir.ca.gov/dlse).
bull; Set a “no overtime” policy. If the retailer does not want to pay for overtime, the best policy is not to allow it. The “no overtime” policy can often result in a moreefficient workplace. Unfortunately, managers sometimes end up doing extra work, or employees sometimes find themselves doing “secret” overtime or being forced to work off of the clock. If that happens, Lindegren suggested paying for the overtime and giving managers better training in executing their duties and record keeping.
bull; Watch the clock at mealtime. Insist employees clock out for meal periods and take them. Train store managers not to permit off-the-clock work and ensure meal or rest breaks are taken.
