The impact of a $15 minimum wage


It appears that America is bracing for the adoption of a $15 per hour minimum wage, up from the existing Federal minimum wage of $7.25. The new minimum wage (to be phased in) has already been established in California and New York. Even Vermont's candidate for governor, Peter Galbraith, is advocating for the adoption of the $15 per hour wage, up from $9.60.

Not unexpected has been the outcry from small businesses. Their concern is that it will force many of them to cease operating or lay off thousands of employees. The proponents of the increase are the labor unions, as well as social welfare groups, whose stated goals are to provide a higher standard of living for the millions now living at or below the poverty level.

A sector that has been consciously absent from the debate in bringing the minimum wage to $15 per hour has been the nonprofit sector. This is especially so here in Vermont where NPO's account for approximately 20% of the state's economy. You just don't know if they are for or against it.

For those readers who are not familiar with having to meet a payroll, they should know that when an entity increases the hourly rate for an employee, the increase in cost to the entity is not solely limited to the difference in hourly rates. Additional costs are automatically incurred due to an increase in the employer's share of social security taxes, disability and workmen's compensation and liability insurance, as well as an increase in unemployment taxes, and contributions to retirement plans (if any).

A case in point in analyzing what impact the increase would have on a small nonprofit that has 10 employees, paid at $11 per hour and working 35 hours per week, follows: 10 employees x $4 per hour increase x 35 hours per week x 52 weeks = an annual increase in expense of $72,800. Add to this, the cost of the NPO employer's share of payroll-related costs at 15 percent and the $72,800 increases to $83,720.

To place the impact of the above in context, a recent report by Common Good Vermont notes that out of the total number of public charities in Vermont, 3,991, there are approximately 3,608 (90 percent) that have annual revenue of $1,000,000 or less.

And then, of course, there is the "gorilla in the closet" when it comes to increasing the minimum wage. And that is maintaining reasonable parity with existing higher per hourly paid employees. For example, will the chef at a nonprofit, earning, say, $16 per hour, be content when she/he now sees that the dishwasher is being paid a dollar less?

There is always a great deal of discourse in dealing with the minimum wage issue. And what is frequently noted is that it relates to families at the federal poverty level – approximately $24,000 for a family (household) of four. What is not addressed in any discussion is the plethora of state and federal programs available to such families. In Vermont, there are dozens of financial aid programs (42) that can be accessed by employees at the poverty level. Then, of course, there is the Federal Earned Income Tax Credit for those employees who pay no Federal Taxes. Instead, they receive payment from the U.S. Treasury.

I urge our legislative leaders, as well as the administration, to survey the Vermont nonprofit sector to determine what will be the economic impact on that sector before rushing to pass a $15 per hour minimum wage.

Businesses have always been the "whipping boy" when it comes to justifying an increase in the minimum wage. They can downsize, increase prices, close down, or move out of state. Nonprofits, especially those that deliver a critical service, do not have such alternatives, but will indeed incur a severe financial hardship.

Don Keelan writes a bi-weekly column and lives in Arlington.


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