CITY OF EMERYVILLEDRAFT MINIMUM WAGE AND PAID SICK LEAVE ORDINANCECity of Emeryville City CouncilStudy SessionApril 7, 2015

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Purpose

• Consider written and verbal comment on a proposed draft ordinance establishing a citywide minimum wage and paid sick leave requirements

• Consider additional analysis on elements of the draft ordinance

• Provide direction on the implementation timeline and final draft ordinance.

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Overview• Background• Summary of written public comment

• Recommendation from Economic Development Advisory Committee

• Additional Analysis• Small business definition• Tipped Employees• Medical benefit credit

• Living Wage Ordnance and Measure C

• “Regionally comparable” wage rate

• Hospitality Service Charge• Exemptions/Phasing• Paid sick leave• Fiscal Impact• Questions/Direction

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Existing Wage Policies in EmeryvilleMeasure C Living Wage

Passed November 2005 2006Key Elements Hotel employees only:

CompensationWorkloadProtections in event of management change

FT City EmployeesCity contractorsFinancial assistance recipientsLessees/licensees/concessionaires/franchisees

Minimum Hourly Rate (Inclusive of Health Benefit)Initial $9.00/hr $11.00/hrCPI Adjustment March 1 July 1Current $11.39/hr (3/1/15) $14.03/hr

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Background

• Comprehensive wage policy (2006)• Measure C & Living Wage• Citywide minimum wage

• Defer consideration until Measure C and Living Wage in place

• August 2014 Update• Administration of Measure C & Living Wage• Recent activity in other jurisdictions

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Background: January 2015• Development of Draft Ordinance• Staff recommendation

• $12.25 initial hourly wage (match Oakland), annual CPI increases• Community outreach• January 1, 2016 effective date

• Council Direction • Based on Oakland initiative• Initial minimum hourly wage rate same as Living Wage effective

July 1, 2015 (est. $14.42/hr.)• July 1, 2015 effective date• Separate community meetings/impact analysis not needed prior to

development of draft ordinance due to recent prior studies

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Background: February 17, 2015• Review of Draft Ordinance - Council Direction

• Phase-in for small businesses and 501(c)(3) organizations• Paid sick leave parameters similar to Oakland

• No maximum use limit• Expanded definition for use of sick leave, incl. designee

• Additional research on tip credit and small business definition• Study session on April 7, 2015

• Draft ordinance revised and distributed• Full draft ordinance mailed to all current business license

holders• Posted on City website• Info flyer mailed to all city addresses

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Summary of Written Public Comment

• Comparable to minimum wage rates of adjacent cities

• Include employer-paid health care benefits in calculation of minimum wage

• Wage increases should be gradual and phased in over time for business plan adjustment period

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Summary of Written Public Comment• Citywide minimum wage creates additional burdens on small businesses• Time and resources dedicated to compliance• Increased costs also include payroll taxes and workers

compensation • Reduced staffing levels or cut staff

• Raises the cost of doing business in Emeryville• Service businesses can access the Emeryville market area

from both Oakland and Berkeley• More difficult to attract/retain businesses• Manufacturing businesses compete nationally and

internationally, and can’t increase prices without becoming uncompetitive

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Summary of Written Public Comment• Exemptions

• Should not provide an exemption for collective bargaining agreements, exemptions should only be at the discretion of the City Council

• Categories for exemption• Internships/training programs are short-term in nature but

provide important entry opportunities and should be maximized• Youth, who might otherwise have to compete with adults,

reducing opportunities for youth employment• All 501(c) organizations, specifically to cover homeowner’s

associations

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Summary of Written Public Comment• The California Restaurant Association submitted a

proposed ordinance • Does not specify a minimum wage rate, but does propose an

escalation through 2017• Exempts “higher wage earners,” as that term is defined in their

proposal• The City Council is seeking approval of the Property-

Based Business Improvement District (PBID), which funds the Emery Go-Round, this summer and consideration of the minimum wage ordinance at the same time may negatively affect one or both proposals

• No citywide minimum wage should be adopted; instead the state minimum wage should continue to apply to Emeryville businesses

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Economic Development Advisory Committee Recommendations• March 4, 2015 reviewed the draft ordinance and considered

comments from members of the public in attendance. • After deliberation, the EDAC unanimously passed a motion:

• “It is important to raise the minimum wage in an expeditious manner, but the City Council should consider creating more opportunities for public comment even if it may delay the effective date beyond the proposed start of July 1, 2015, make the wage step increases regionally equivalent, and include consideration for health care and defining the size of small businesses.”

• Other recommendations • Exception for youth internships administered by a government agency• All 501(c) organizations, not just 501(c)(3), should be allowed to

phase-in implementation on the same schedule as small businesses

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Small Business Definition• Draft ordinance defines small businesses as those with 10 or fewer

employees, for allowing a phase-in period and setting a lower cap for paid sick leave accumulation

• No accepted standard for defining a small business, either on a national or local scale

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Minimum Wage OrdinanceBerkeley (proposed)/ Oakland/San Francisco(2004)

≤10 employees

Seattle <500 employees in USSmall Business Assistance

SBA ≤$7m in gross revenues(retail & restaurant)

San Francisco ≤100 employeesSeattle <50 or <$10m in gross revenues

Formula Retail - Fair SchedulingSan Francisco ≤20 employees & 20+ units worldwide

Affordable Care Act (ACA) ≤25 employees, avg. wage ≤$50k; tax credit≤50 employees; small business marketplace

Definition of Small Businesses

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• Comment from small business owners at City Council and EDAC meetings suggests that ten or fewer employees may be too small to capture many of the smaller, independent businesses in Emeryville.

• The ACA limit of 50 employees for businesses that may use the marketplace for insurance set aside for small businesses was suggested as an alternative threshold during public comment at the EDAC meeting.

Tipped Employees• Tipped employees may have effective hourly wages at or

above the proposed minimum wage rate for Emeryville.

• State law does not allow for tip income to be credited for the purposes of calculating minimum wage.

• Staff Recommendation: Ordinance to clarify No Tip Credit, consistent with State law.

• Alternate approach: Seattle model

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Medical Benefit Credit • Employer-paid medical benefits considered part of an employee’s total

compensation package• Not considered taxable income, and does not increase an employees’

gross income for taxation purposes.• Use in minimum wage laws

• Seattle• Richmond (approved) and Berkeley (proposed)

• Specific maximum amount currently $1.50/hr for Richmond and $2.28/hr for Berkeley• Richmond: Can be applied to calculation of minimum wage. If valued at less than

specified amount or no benefit given, employer must make up shortfall in order toachieve the minimum wage rate

• Berkeley: Health benefit over and above minimum wage. If valued at less than specifiedamount, employer must add shortfall to minimum wage

• Most minimum wage laws do not allow a medical benefit credit forminimum wage rate• Difficulty in calculating the hourly rate of medical benefit compensation, as it is

not expressed on a per hour basis in payroll records.• Legislation must be be carefully crafted to prevent exploitation of the credit• Added burden of evaluating an employers’ health plan in addition to payroll

records

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Living Wage Ordinance and Measure C• Per the direction of Council, the proposed ordinance uses

the City’s current Living Wage rate as initial minimum wage rate

• Both Measure C and Living Wage are inclusive of wages and health benefits• Monetary wages paid to the employees may be reduced by the

monetary value of the employer’s contribution for health benefits.

• Proposed Emeryville wage and sick leave ordinance, as based on the Oakland initiative, does not have a consideration for a health benefit credit

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“Regionally Comparable” Wage Rate • Comments from both the public and the EDAC suggested

that the wage rate be comparable to adjacent cities, or “regionally comparable”. • Main purpose is to remain competitive with adjacent jurisdictions

for the cost of doing business • Minimum wage rate put forth by Council of $14.42 per

hour to be in place by July 1, 2015 is higher than the minimum wage set by any other jurisdiction in the nation for 2015• The minimum wage of $12.25 per hour in the Oakland initiative,

effective as of March 2, 2015, is approximately 36% higher than the current State minimum wage rate of $9.00 per hour while the draft Emeryville rate represents a 60% increase over the current State minimum wage.

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“Regionally Comparable” Wage Rate • East Bay: Current minimum hourly wages range from

$9.60 per hour in Richmond to $12.25 per hour in Oakland• Berkeley is in the process of considering an amendment to their

existing law, anticipated to be considered by their City Council in the latter half of this year.

• Bay Area: San Francisco, San Jose, Sunnyvale, and Mountain View also have adopted minimum wages• Range from $10.30 per hour for the cities in the South Bay to

$12.25 in San Francisco (starting May 1, 2015)

• Depending on how a “regionally comparable” wage is defined, such a wage would range between $9.60 per hour to $12.25 per hour in 2015.

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East Bay Minimum Wage

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$8

$9

$10

$11

$12

$13

$14

$15

$16

$17

2015 2016 2017 2018 2019 2020

Emeryville

Berkeley

Berkeley Proposed

Oakland

Richmond

California

$15 per Hour Wage• Recent discussion of $15 per hour as a desirable

minimum wage. • Of the cities with approved minimum wages in the Bay

Area, only San Francisco will achieve a $15 per hour minimum wage by 2018, and others will not do so even by 2021.

• Should Berkeley approve revisions of their minimum wage ordinance as recommended by their Labor Commission, that city will likely achieve a minimum wage at or above $15 per hour by 2018 as well

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$15 Minimum Wage

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$8

$9

$10

$11

$12

$13

$14

$15

$16

$17

2015 2016 2017 2018 2019 2020

Emeryville

Berkeley Proposed

San Francisco

Los Angeles Proposed

Seattle (500+)

Proposed Lift Up Revisions• Provide greater transparency with respect to the distribution of

the service charge and clarify that service charges cannot be considered a component of meeting the minimum wage requirement.

• Each Hospitality Employer shall disclose in writing to each employee its plan of distribution of service charges to employees and shall report to employees on each payroll date on the amount of service charges collected and amounts distributed to employees for the pay period in question.

• No Hospitality Employer or agent thereof shall deduct any amount from wages due an Employee on account of a Service Charge, or require a Hospitality Employee to credit the amount, or any part thereof, of a Service Charge against and as a part of the wages due the Hospitality Employee from the Hospitality Employer.

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Hospitality Service Charge• Service Charge: Collected by Service Employer for

service provided by employees who actually performed service (excluding managerial employees).

• Draft Ordinance• Service Charges to be paid entirely to employees who performed

service • No part paid to supervisors except for portion of customer service

actually performed

• Does not apply to tips or gratuities.

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Exemptions or Phased Implementation • Some minimum wage ordinances prescribe that certain

businesses or types of employment be exempt, or that the increase be phased for those businesses.

• Example categories for exemption and/or phasing include internships or training programs, small businesses, and nonprofits.

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Exemptions or Phased Implementation • Nonprofits and small businesses candidates for phasing• Allow a longer period to amend business plans to

accommodate the new minimum wage, including but not limited to changing product/service pricing, accessing bridge funding, or amending grant provisions

• Commenters asked that all 501(c) nonprofit organizations be considered for exemption, not just 501(c)(3) which are recognized as charitable organizations

• Berkeley does provide for a phase-in period for non-profit organizations, but specifically limits it to 501(c)(3) organizations

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Exemptions or Phased Implementation • Internships and youth are candidates for exemptions from the

citywide minimum wage ordinance. • Meant to be for a limited duration, and are primarily meant to provide

job training, skills, and experience as a pathway to career advancement

• Not intended as a means to support a household, particularly with respect to youth employment, as it expected that minor employees are under the care of a parent or guardian.

• Lower costs will allow the employers to maximize the potential number of job opportunities.

• Both Richmond (up to age 21) and Berkeley (up to age 25) provide an exemption for youth employment in specific nonprofit or governmental youth employment programs.

• State minimum wage law allows “learners” to be paid 85% of minimum wage for the first 160 hours of employment

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Implementation Timeline• In consideration of meeting July 1 implementation timeframe

public comment would be gathered from City Council meetings, including this study session, and any comments submitted to City staff. • No community workshops or other special meeting would be held.

• As noted in their March 4, 2015 motion, the EDAC asked for more opportunities for public comment. • Effective date of the ordinance could be postponed to August or

September of 2015. • Concern raised that continued deliberations on the proposed

ordinance would create an insecure environment for businesses making planning for changes in labor costs difficult

• Not part of the formal motion, but general consensus that a firm date for implementation is desirable so as not to create unstable conditions for both existing businesses and businesses considering relocating to or establishing in Emeryville

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AB 669 (Daly)

• Existing State law: $10/hr Minimum Wage (Jan. 1, 2016)

• Bill would cap wage for “Qualifying Tipped Employee” at $9/hr (Jan. 1, 2016)

• “Qualifying Tipped Employee” • Employee who receives wages at rate at least $15/hr, including tips

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AB 669 (Daly)• Supersedes local minimum wage laws unless the local

law specifically states the local jurisdiction’s intent to establish higher minimum wage for Qualifying Tipped Employees

• Staff Recommendation: Add statement explicitly stating Emeryville’s intent to establish higher minimum wage

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Paid Sick Leave• Proposed ordinance is based on the Oakland initiative,

which includes provisions for paid sick leave.

• AB 1522, the “Healthy Workplaces, Healthy Families Act of 2014,” which provides for provides for paid sick leave state-wide

• The Oakland initiative largely mirrors AB 1522 but there are differences between the two statutes which staff highlighted for the City Council’s consideration at the February 17, 2014 meeting.

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Paid Sick Leave• AB 1522 is Floor, not Ceiling

• Staff Recommendation: Ordinance to clarify AB 1522 applies, unless otherwise provided in Ordinance

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AB 1522 – Paid Sick Leave (July 1, 2015)• Covered Employees: working 30+ days / year

• Accrual Rate: 1 hour / 30 hours worked

• Start Date for Use: 90 days after effective date

• Maximum Usable Hours: 24 hours or 3 days / year

• Maximum Hours Accrued: 48 hours or 6 days / year

• Exemption: If employer already offers paid sick leave

• No Payout at Separation

• Floor, Not Ceiling: City may adopt regulations allowing for expanded benefits.

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Paid Sick Leave: Council Direction• Definition of Employee

• More expansive definition of employee based on the Oakland initiative, rather than the narrower definition provided by AB 1522.

• Maximum Paid Sick Leave Hours Accrued• Two tiered accrual cap for Small Businesses (currently defined as

10 or fewer employees) and all other employers.

• Small Business Employees: 48 hours/year

• All other Employees: 72 hours/year

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Paid Sick Leave: Council Direction• Maximum Hours of Usable Paid Sick Leave Per Year

• No limits on the amount of paid sick leave an employee could use each year: i.e., the employee may use up to the amount of leave accrued

• Use of Paid Sick Leave• Employee may use paid sick leave to provide care for a designated

individual in the event the employee does not have a spouse or registered domestic partner. The employee may change the designation on an annual basis.

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Fiscal Impacts• Total Costs

• FY 2014-15• $35,000 education and outreach materials

• FY 2015-16 and ongoing• Administration and enforcement $125,000• City staff additional wages and benefits $80,000• Total ongoing: $205,000 (with annual adjustments to City staff additional

wages).

• Costs estimated that one full time employee would be needed to administer and enforce the minimum wage ordinance. • Should the Council consider some of the more detailed credits,

such as consideration for tip income or health care benefits, additional staff may be needed.

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Conclusion• In establishing any new legislation, there is a

consideration to ensure that the law is effective with respect to outcomes and administration, while minimizing any negative unintended consequences.

• Staff recommends the final ordinance language keep this consideration in mind, with a key aspect of keeping the ordinance fairly straightforward in order to: • Allow for consistent and timely enforcement.• Reduce the administrative burden on staff, thereby reducing City

costs.• Reduce administrative burden on businesses, especially small

businesses.

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Questions/Direction: Effective DateDoes Council wish to adjust the effective date in order to allow additional time for public input, as well as allow businesses some additional time to adjust their business plans and practices and create some certainty with respect to this element of the business environment, or keep the July 1, 2015 effective date?

• If later, when?• Additional community meetings?

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Questions/Discussion: Small Businesses• Does Council wish to provide special provisions for small

businesses?

• If so, what definition of small business does Council wish to use?

• Does Council wish to retain the different sick leave provision for small businesses?

• Does Council wish to include a different wage rate structure for small businesses included in the ordinance?

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Questions/Direction Wage Rate• Does Council wish phase-in wages for all businesses, or

just small businesses as included in the draft ordinance?• If a phase-in is desired, should it be the schedule

proposed in the draft ordinance or mirror San Francisco’s schedule, which is more aggressive than other East Bay cities but still in line with the Bay Area region?

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Phase-In Proposal San Francisco

July (or October 1), 2015 $12.25 $12.25

July 1, 2016 $13.50 $13.00

July 1, 2017 $15.18 (match Living Wage)

$14.00

July 1, 2018 $15.57 $15.00

Questions/Direction: Tips & Health BenefitsSeattle Model: Tips and/or Health Benefits?• Requires additional documentation beyond payroll that

would need to be acquired, submitted, verified and evaluated

• Increases the administrative time and cost burden for all parties

• May delay workers receiving the approved higher minimum wage.

• Does Council wish to consider the Seattle model?

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Questions/Discussion: Exemptions• Youth

• Does Council wish to allow an exemption for youth employed in temporary youth employment programs funded, at least partially, by non-profit or governmental entities in order to maximize opportunities for job training for youth?

• Collective Bargaining• Does Council wish to retain the exemption for ratified collective

bargaining agreements be retained, as this a feature of all other minimum wage laws and to the degree possible, regional consistency will also help with administration and enforcement?

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Questions/Discussion• Hospitality Charges

• Does Council wish to accept the additional language with respect to hospitality charges suggested by LiftUp?

Staff requests the City Council to provide direction on the preceding items and provide direction on any other aspect of the ordinance the City Council may wish to address

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Summary of Discussion Questions1. Effective date: July 1, 2015 or later?

2. Small business: Retain sick leave special sick leaveprovisions? Different wage schedule? If so, what definition touse?

3. Phase-In: All businesses, or just small businesses? Ifphased-in, use schedule in ordinance, San Francisco, orother?

4. Credits: Seattle Model?

5. Exemptions: Youth? Collective bargaining?

6. Hospitality charge changes incorporated into final draft?

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