By Mark Carlisle

and Rusty Bradshaw

Independent Newsmedia

Arizona started 2019 with its third minimum wage increase in three years, and it will be big businesses who feel the effect most.

According to a survey from the Greater Phoenix Chamber of Commerce conducted before the 2019 increase went into effect, more than half of businesses with more than 100 employees reported a negative impact from Arizona’s increased minimum wage while fewer than a quarter of businesses with 10 or fewer employees saw a negative impact.

“The smaller (businesses) that have a couple, three people didn’t feel it as much as the people that had 200, 300 employees,” said Greg Tilque, Greater Phoenix Chamber of Commerce senior economic development manager.

For the Sun Cities, the largest employers are the recreation center organizations and the hospitals. They will feel the pinch of higher minimum wages in differing degrees.

The Fair Wages and Healthy Families Act, passed in Proposition 206 in November 2016, adopted a $12 minimum wage in Arizona by 2020. The first increase, on Jan. 1, 2017, rose the minimum wage from $8.05 per hour to $10. Last year it increased to $10.50, this year to $11 and next year it will jump a full dollar to $12. Tipped workers, such as waiters, can be paid $3 per hour below the minimum wage in addition to their tips.

Recreation Centers of Sun City, which operates on a calendar year, employs 385 people with 185 of those making minimum wage, according to Joelyn Higgins, RCSC communications and marketing coordinator. The biggest impact for RCSC was for the 2017 budget year when the minimum wage jumped by $1.95 per hour. RCSC officials not only had to increase the minimum wage, but had to adjust other pay scales upward accordingly, according to Ms. Higgins.

Joelyn Higgins

“Increases for 2018 and 2019 were only 50 cents per hour and it did not have the overall affect because not as many pay scales were effected,” Ms. Higgins stated in an email.

To meet the higher costs in 2017, RCSC officials raised the annual property assessments for homeowners. But they did not increase those costs for the 2018 or 2019 budget years.

“Prior year carry forward was used for 2018,” Ms. Higgins stated. “In 2019 we will have reduced monthly operating costs from solar to help cover these increases.”

When the minimum wage increases for the final time in 2020, RCSC’s cumulative 2018-20 increase will be $2 per hour and will again affect numerous other pay scales and overall expenses, according to Ms. Higgins.

Recreation Centers of Sun City West operates on a fiscal, not calendar, year so the minimum wage effects were somewhat muted, according to Katy O’Grady, RCSCW operations services officer.

“As we saw these increases coming down the pike, we were able to plan for and absorb them without too much visible impact,” Ms. O’Grady stated in an email. “Taking into account the seasonality of some of our staff and the fiscal year effect, we are seeing an impact of less than one half of one percent of our annual revenues.”

Because of the advance notice for 2018 and 2019, RCSCW officials were able to project at what Ms. O’Grady called a fairly granular level how the staff and organization would be impacted.

Katy O'Grady

“We made not only the minimum wage adjustments but also accounted for some compression (adjusting non-minimum wage earnings upward),” she stated.

While RCSCW officials anticipate the increase in minimum wage will impact their 2020 budget, there are many additional variables that will come into play, according to Ms. O’Grady.

“We will plan accordingly, and residents can expect to see no impact on services,” she stated.

RCSCW’s total number of employees varies based on the season, but on average there are about 470 staffers at any one time. In the last payroll cycle, 137 were at minimum wage.

“However, increasing minimum wage has a ripple effect (the compression on those close to minimum wage) that will most likely result in an additional 35 staff members receiving increases,” Ms. O’Grady stated.

The impact of the state minimum wage increase on the Banner hospital budgets is relatively insignificant as health care professions tend to pay better than average wages when compared to other sectors of the economy, such as retail, fast food or the hospitality industries, according to Jeff Nelson, Banner Health spokesman.

“Of the 2,750 total hourly employees who work at our Banner Boswell and Banner Del E. Webb medical center campuses, only two employees (one at Banner Boswell and one at Banner Del E. Webb) earned less than $11 per hour prior to the minimum wage increase that went into effect Jan. 1,” Mr. Nelson stated in an email. “Both of them have, obviously, had their hourly wages increased to the new minimum.”

Arizona is one of 20 states increasing its minimum wage in 2019.

While the Phoenix area’s unemployment rate continues to drop, the rate of the drop has slowed since the minimum wage increases first went into effect.

Metro Phoenix has an unemployment rate of 3.9 percent, according to the latest numbers from the U.S. Bureau of Labor Statistics, which equals to the national rate.

After three straight years of the Valley’s average annual unemployment rate dropping by more than 11.5 percent, the rate dropped 8.7 percent in 2017 and 2.3 percent in 2018. The past two years are the smallest decreases since the unemployment rate rose to 9.6 percent in 2010.

The decline of national unemployment rate has not slowed, falling 10.2 percent in 2017 and 11.4 percent in 2018.

The change has mostly been felt by large businesses. The greater Phoenix Chamber of Commerce’s survey showed nine of 17 respondents (52.9 percent) of businesses with more than 100 employees reported a negative impact from the higher minimum wage. Seven companies (41.2 percent) reported no impact and one (5.9 percent) reported a positive impact.

The new law was felt less by smaller companies. Twenty of 48 companies (52.6 percent) with 11 to 100 employees said they felt no impact from the law. Fifteen (39.5 percent) reported a negative impact and three (7.9 percent) reported a positive impact.

Most small businesses could absorb the increase without problem. Eighty-nine of 121 companies (73.6 percent) with 10 or fewer employees said the law didn’t affect their business. Twenty-nine (24 percent) said it had a negative impact and three (2.5 percent) said it had a positive impact.

One West Valley mid-sized business, Final Clearance in Peoria, has not been affected much by the law. Dan Thompson, the owner of the outlet store with 38 employees, said he hasn’t had to reduce his workforce as a result of the higher minimum wage.

The main change Final Clearance has made is to increase its starting wage in order to stay above the minimum wage, Mr. Thompson said, in order to recruit more skilled workers. The first wage jump in 2017 brought the minimum wage up to match what had been Final Clearance’s starting wage.

“We weren’t really competitive anymore,” Mr. Thompson said.

Final Clearance’s starting wage is now $12 per hour, one dollar above the new minimum wage in 2019. Most cashiers get paid about $13-14 per hour though. Mr. Thompson said he hasn’t officially made plans to raise his store’s starting wage next year after the minimum wage rises to $12 per hour, but he anticipates he’ll raise it above $13 per hour.

The minimum wage is not the only reason the store has had to increase its starting wage. A bigger impact has been what competitors pay. Final Clearance rose its starting wage to $11.25 per hour shortly after Walmart did. Most stores are playing catchup to Amazon, which announced a $15 starting wage for its workers in October.

“When your competitors are paying more for a job that anybody can get hired for, it’s something to be concerned about,” Mr. Thompson said.As Final Clearance raised its starting wage, it’s been able to be more selective in hiring. With the increased minimum wage, it’s no longer an option for companies to hire less experienced workers at a lower wage than other workers.

“Your starting wage for a brand-new employee out of high school probably limits them,” Mr. Thompson said. “You know, we’re going to take someone who’s got five years’ experience over a kid fresh out of high school. We’re a lot more choosy, I’ll tell you that.”

Final Clearance aims to become more selective to keep pace with competitors.

“Our goal is to move more toward a Costco-type model, where it’s very difficult to get hired, pays very well, very good benefits,” Mr. Thompson said.

Businesses are the only ones affected by the new law. This year, the city of Glendale had about 180 of its 2,200 employees affected by the minimum wage increase. Most of those 180 are part-time or temporary positions, mainly in the libraries or the Parks and Recreation department.

The city didn’t have many employees affected by the first raise to $10 per hour but has had more impacted with each annual raise.

“Last year and now this year will be the first time where we’re really seeing much of an impact,” said Glendale Budget and Finance Director Vicki Rios.

The 2019 increase will cost Glendale about $140,000, but Ms. Rios said it hasn’t been much of an obstacle to the city, as they’re able to get ahead of the increase each year. The city has not had to decrease its staff as a result.

While only a small percentage of the city’s staff is affected by the increase, many of the workers from companies the city contracts with are impacted by the annual increases. The biggest shakeup was at the start of 2017, when minimum wage rose from $8.05 to $10 per hour as a result of the election two months prior.

After that change, many contractors told the city they needed to make an adjustment in their contracts with the city, which can be several years’ long, because of the unexpected increase in labor costs. Ms. Rios said the city renegotiated some contracts and re-bid others to find a new contractor who could perform the work for a lower price.

Since that initial jump, the increases haven’t been a problem because the annual increased labor costs are factored into the city’s contract with the contractors.

Sick leave

The minimum wage increase wasn’t the only thing the Fair Wages and Healthy Families Act enacted. It also required employers to provide at least one hour of sick pay for every 30 hours worked. For salaried workers, employers with fewer than 15 employees must provide 24 hours of sick pay each year. Employers with 15 or more employees must provide salaried workers at least 40 hours of sick pay each year.

Many employers feel their employees are abusing this new sick leave, using it as vacation time.

“In the employer’s mind, some people are taking advantage of that law, and they’re saving up all their sick leave and all of a sudden, where they never took sick around the holidays, now they’re all of a sudden sick. And it’s affected some of the businesses’ operations,” Mr. Tilque said. “Especially where you have distribution facilities, stuff like that, where all of a sudden during the holidays, where they need people, they’re not there.”

Mr. Tilque said one business Chamber officials talked to saw a third of its 250 employees take off multiple days around a holiday.

Mr. Thompson has seen the same thing at Final Clearance.

“The problem is as soon as they decide they want to move on or they just want a day off, they can take their sick leave,” he said.

This year, to try to correct the problem, Final Clearance is moving to a paid time off system, where sick time and vacation time are grouped in the same category.

“If you decide you’re going to resign, you don’t have to call in sick for seven days. You can just cash it out,” Mr. Thompson said.