Payroll Pressure Ratchets Up
LABOR COST FORECASTS
2013 marked the first year since 2007 in which the median household income increased, albeit at the almost imperceptible level of 0.3%. Employers added more jobs in the 12 months ending September, 2014 than in any rolling-twelve month period since 2006. Expect real dollar growth in direct payroll expense this year.
Wage Rates
A recent survey by the American Hotel & Lodging Association (AH&LA) released a survey indicating that most hotel positions pay above minimum wage. So, why is this floor so important? Minimum wage is important because of the trickle-up effect. A highly regarded economist estimates that within a few years of the increase, four times as many employees have been affected, and the cost is generally three times the direct cost. The President’s proposal to increase the federal minimum wage to $10.10 is gaining momentum, but many states are not waiting. During the 2014 sessions, 34 states introduced legislating that would increase minimum wage levels.
- Connecticut, Maryland and Hawaii enacted three- to four- year staged increases to $10.10.
- Massachusetts will exceed the federal proposal by 2017 and Vermont in 2018.
- The legislatures of Delaware, Michigan, Minnesota and West Virginia voted to increase to between $8.25 and $9.50 by 2016, slightly below the federal proposal.
These legislative increases are relatively benign. Activists in have put initiatives on the ballot in five states: Alaska, Arkansas, Illinois, Nebraska, and South Dakota. And, in contrast to last year’s mostly single digit increases, the average of these statewide ballot initiatives is over 21 percent. The Wall Street Journal reported that, since 2002, there have been 10 statewide ballot initiatives, all undefeated. You should assume these will pass.
For a state-by-state list of known increases, go to: www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.
As you are reviewing budgets, you will need to research municipal initiatives, since cities have jumped into the fray. Fast food workers continue to demonstrate, and living wage ordinances have been passed or proposed in the following major cities:
- The District of Columbia (enacted, will raise to $11.50 by 2016)
- Chicago, proposed by the mayor’s office at $13 by 2018 after a March “advisory” ballot proposing a $15 minimum passed by 85%
- Los Angeles, proposed by the mayor’s office , at $13.25 for 2015
- Oakland, November ballot initiative, to $12.00
- New York, proposed to go to $10.10
- Seattle, enacted by City Council, at $15.00 by 2018, with credits for health insurance
- San Francisco, ballot initiative, could bring to $15.00 over next 4 years
Google early, and google often. In mid-August, San Diego’s City Council over rode the mayor’s veto of their motion for an increase from $9.00 to $10.50. By mid-September, the San Diego Small Business Coalition turned a petition with 56,000 signatures to put the action to a ballot initiative. The increase is on hold until June, 2016, the date of the initiative.
Health Insurance Costs
Fears regarding a rapid run-up in premiums due to enrollment of previously uninsurable parties may prove unfounded. The PWC Health Research Institute pegs the national average increase in premiums at 7.5%. Some states will be in excess of this: Arkansas, Iowa, Kansas, Tennessee, Vermont and Virginia are slated to see 10 to 15% increases. Arkansas is scheduled to decline 2.0%. In consumer-friendly California, 2015 premiums are only scheduled to increase by 4.2%. For specific states, click the link www.pwc.com/us/en/health-industries/health-research-institute/aca-state-exchanges.jhtml.
About the Author
Karen Johnson MAI, ISHC is Principal of Pinnacle Advisory Group West located in Newport Beach, California. Ms Johnson has been active as a hospitality consultant since 1981. In addition to providing asset management services, Ms. Johnson is an MAI and a member of the Urban Land Institute, sitting on the Entertainment Council. She was also admitted to Counselors of Real Estate (CRE), NCREIF, and the International Society of Hospitality Consultants (ISHC).