Seattle’s Living Wage Ordinance, established in 2015, has become a prominent policy aimed at improving the lives of low-wage earners in the city. By mandating a higher minimum wage than the state requires, the ordinance directly impacts worker paychecks. But for businesses, it raises questions about how payroll will be affected. This blog post will delve into the impact of Seattle’s Living Wage Ordinance on business payroll, using information from the Seattle Office of Labor Standards (OLS) document (last updated September 28, 2022), to offer a clear understanding for employers.
Before the Living Wage Ordinance
Prior to 2015, Seattle followed the state minimum wage, which was lower than the living wage many residents needed to afford basic necessities. This meant that some businesses might have been able to manage their payroll costs with lower wages. However, for employees, this could have resulted in financial strain and difficulty making ends meet.
The Living Wage Ordinance and Its Details
The Living Wage Ordinance introduced a phased-in increase to the minimum wage in Seattle. It applies to both large employers (those with 501 or more employees) and small employers (those with 500 or fewer employees). The minimum wage is adjusted annually based on inflation, ensuring its relevance to the rising cost of living.
Here are some key details of the ordinance as per the Seattle Office of Labor Standards (OLS) document:
- Large Employers: Minimum wage is based on the Seattle-Tacoma-Bellevue Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
- As of June 10, 2024, the minimum wage for large employers is $19.97 per hour.
- Small Employers: Can meet the minimum compensation requirement through a combination of hourly wages, tips reported to the IRS, and employer payments towards qualifying medical benefits.
- The minimum compensation requirement includes tips and/or employer contributions towards medical benefits.
- In 2025, these requirements for small employers expire. They will need to pay the same minimum wage as large employers.
Important Note: Employers cannot use the cost of employee housing to meet minimum wage or minimum compensation requirements. It’s considered a benefit, not wages.
Living Wage Ordinance’s Impact on Payroll
The Living Wage Ordinance has a direct impact on payroll costs for Seattle businesses. Here’s a breakdown of the key considerations, based on the OLS document:
- Increased Labor Costs: Employers have to pay their workers a higher minimum wage, leading to a rise in overall payroll expenses. This can be especially noticeable for businesses that rely heavily on minimum wage employees.
- Potential for Reduced Hours: Some businesses might respond to the higher wage by reducing employee hours to manage payroll costs. This could affect employee income and overall work-life balance.
- Recordkeeping Requirements: Employers must maintain detailed payroll records for three years, documenting minimum wage and minimum compensation paid to employees. This can add administrative burdens to payroll processing.
- Records must include information regarding medical benefits and tips that demonstrate compliance with minimum wage and minimum compensation requirements.
- Overtime: Seattle minimum wage applies to overtime calculations (time and a half for exceeding 40 hours/week). The OLS document details specific overtime rates for large and small employers based on minimum wage and minimum compensation.
Finding Balance: Considerations for Businesses
While the Living Wage Ordinance increases payroll costs, it can also have positive downstream effects. Higher wages can lead to:
- Improved Employee Morale: Knowing they can afford basic necessities can boost employee morale and potentially reduce turnover.
- Increased Productivity: Studies suggest that higher wages can lead to increased employee productivity and engagement.
- Enhanced Customer Service: A more satisfied workforce can translate to better customer service, potentially attracting and retaining customers.
Conclusion
Seattle’s Living Wage Ordinance, implemented in 2015, significantly affects business payroll by mandating higher wages. While this increases labor costs and administrative burdens, it also promotes employee well-being, potentially enhancing morale, productivity, and customer service. Businesses need to balance these costs and benefits to adapt effectively to the ordinance and leverage its positive impacts.
