Portland Minimum Wage 2016 (and Beyond) Edition
Oregon’s new minimum wage went into effect July 1, 2016. Although debates on the proposed wage increase were heated, Senate Bill 1532 passed, and, in March, Governor Kate Brown signed the Oregon Minimum Wage Law. However, like most new labor laws, there’s still a lot of concern and confusion about it and how the new minimum wage will affect Oregon’s largest employer: the state’s small businesses. And, as we’ll see, Portland minimum wage 2016 may hit small businesses the hardest.
Thirteen states, Washington, D.C., and any number of cities are raising their minimum wage during 2016, so there’s been a lot of debate across the country in the last year about the minimum wage, whether or not it should be increased, and if so, how much, and how soon. Many of these wage increases will be incremental rather than a one-time hike, including Oregon and its northern neighbor Seattle have legislated an incremental hike. However, Oregon’s minimum wage law has some key differences that mean Portland will be affected differently than the rest of the state.
Oregon minimum wage
Oregon’s minimum wage law looks a lot like the recent laws in California, Washington, and New York. For example, in each state, both the laws themselves and the increases in wage are graduated and triggered by date. This means that a state’s minimum wage might increase to, say, $10 in 2016, $11 in 2017, $12 in 2018, $14 in 2020. The Oregon law follows this pattern in that it is a graduated increase by year beginning July, 2016.
However, Oregon added a provision to how the wage increases take effect: based on the business’s geographic location within the state. At first blush, this might sound random or unfair, but it’s an attempt to address the challenge of the variation in cost of living across the state.
Oregon’s minimum wage law is structured as a tiered system, made up of three distinct geographic areas: Standard, Portland Metro, and Non-Urban Counties, identified in the map above.
The Portland Metro area, as well as the Urban Growth Boundary, which includes counties surrounding Portland and which are economically linked to it, will have larger increases in minimum wage than the Standard and Non-Urban Counties. That’s because the cost of living is higher in that part of the state. The chart to the right shows what those increases in wage will look for Oregonians.
The legislation has set increases every year from 2016 to 2023, after which, increases will be tied to the Consumer Price Index of the US Bureau of Labor Statistics. This means that minimum wage increases from 2023 on will match the cost of inflation, including pricing of goods and services in each of Oregon’s three tiers.
Portland minimum wage 2016
For Portland businesses, the new minimum wage law which went into effect on July 1 means that every employee working in a Portland-area business is entitled to a minimum wage of $9.75, including tipped employees. Portland businesses are expected to weather the initial increase with little disruption to operations, given that the first year (2016) is only a $0.50 increase from the previous wage of $9.25. However, the following July 2017 hike will be $1.50 to $11.25, which will require many businesses to substantially reconfigure their operations budget.
But, how does a state or city minimum wage get calculated in the first place?
Just what do we mean when we say “minimum”?
Since every state and some cities have their own minimum wage (or uses the federal minimum wage by default), there’s no one formula by which all minimum wages are calculated. But there is some data that governments generally take into account when trying to establish a minimum wage.
For starters, the federal minimum wage is benchmarked to the Federal Poverty Level. Since the basic intention of the minimum wage was to establish a baseline for a livable wage that would allow an individual to support a family, it makes sense to use what the federal government calculates an individual or family needs earn in order to cover basics like rent, food, and utility payments. The following are the 2016 Federal Poverty Level numbers:
- $11,880 for individuals
- $16,020 for a family of 2
- $20,160 for a family of 3
- $24,300 for a family of 4
- $28,440 for a family of 5
- $32,580 for a family of 6
- $36,730 for a family of 7
- $40,890 for a family of 8
Employees who work 2,080 hours in a year (that’s 40 hours/week for 52 weeks) at the federal minimum wage of $7.25, earn about $14,790 per year. If you live in NYC, Seattle, San Francisco, or Portland, for that matter, where an average studio apartment can run from $700 to $2,000 and up …well, $7.25 an hour may not add up to rent, food, and utility bills.
Another factor frequently used in determining a minimum wage is comparing nominal income to real income. Nominal income is the actual number of dollars you receive; real income is how your dollars actually spend. So a 1938 nominal salary of $510/year would translate to about $8,000/year in 2016 real income.
Nominal income versus real income
In real income, the highest the U.S. minimum wage ever occurred in 1968 when the federal nominal wage was $1.60 per hour—which would be $10.34 per hour in 2016. Since 1968, however, that real income dropped almost every year until 2009, when it stabilized at about $7.25/hour in both real and nominal income—and $7.25 has been the nominal rate since. Of course, a decrease in spending power from $10.34 to $7.25 is a huge pay cut for people. The Oregon State University chart demonstrates what the real income of a minimum wage worker looks like over time.
Many cities and states—Oregon included—are using their legislative powers to give minimum wage workers a boost in real income (which also means a boost in the actual hourly wage) to start catching up with the cost of living, something the Federal government has not yet done.
Another way of thinking about the gap between nominal and real income is covered in a recent Marketplace piece. It notes that, according to the Economic Policy Institute (EPI), if “the minimum wage followed average wage growth—which, as we know, hasn’t been stellar—it’d be around $11.35.” And if the federal minimum had kept pace with American worker productivity, the minimum wage would be “just under $19 now.” The EPI chart offers a useful visual comparison.
Who pays the minimum wage?
Non-exempt businesses are required by the Fair Labor Standards Act (FLSA) to pay the federal or local minimum wage, if there is one, whichever is higher. Exemption can depend on whether or not you do business with local government, employ tipped workers, and/or how many employees you have.
Generally speaking, the federal minimum wage applies to businesses that do $500,000 or more in annual sales or engage in interstate commerce. The definition of interstate commerce is more capacious than you might expect; it covers everything from handling goods that cross state lines to making out-of-state phone calls.
- independent contractors
- outside sales people
- workers on small farms
- seasonal amusement or recreational workers
- paper delivery
- apprentices, students, and learners, as defined by law
If you are paying the minimum wage, you have the option of paying via salary, commissions, wages and tips, or a piece rate, as long as the payment amounts to the minimum wage for hours worked per week.
Currently, you may get a “tip credit” if you employ tipped workers—that is, you can pay employees who earn tips a “subminimum” wage as long as their pay plus tips add up to at least the minimum wage per hour worked—depending on where your business is located. In Oregon, the minimum cash wage for tipped workers is now the same as the state’s minimum wage, $9.75. California also has a minimum cash wage, $10 per hour, for tipped workers, while New York still adheres to the cash-plus-tips structure, currently $9 an hour.
Minimum wage and the cost of living
Part of the challenge of a federal minimum wage law that tries to sets a national standard is the reality that not all states—not even all cities of the same size—have the same cost of living. According to RentJungle.com, as of June 2016, the average rent for a one-bedroom in San Francisco is $3,490, in New York City, it’s $2,848, in Seattle, $2,005, and in Portland, the average rent on a bedroom apartment is a mere $1,546. So, where you live determines to a significant extent how much your nominal dollar is actually worth (its “real” value).
Curious to know where the buck stops in another city? CNN has a handy calculator that will either make you very happy or very depressed, depending on where you’re living. Turns out, if I moved to Arizona tomorrow (which I am definitely not doing) and wanted to maintain the standard of living I have in Brooklyn, I would only need to be earning about half of my current salary. The current average rent for a one-bedroom in Phoenix is $929; in Tucson, it’s $578.
That gap in spending power (or real income) between places like Arizona and New York is also why your friends and family in the suburbs can laugh about how the rent on your tiny apartment is twice the mortgage on their not-tiny house. Many states and cities have responded to this inequity in the spending power of the national minimum wage by passing laws specific to their geographies. Oregon is now one of these states.
Opponents and proponents of minimum wage increases in Oregon naturally have different ideas about what the future holds for Portland small businesses. Some fear it will lead to economic disaster, while others are confident it will lead to economic boon. A Public Affairs Council survey quoted by Small Business Majority found that 68 percent of shoppers prefer local small businesses, and they extrapolate that a raise in the minimum wage “will increase consumer demand at local businesses” and “boost small business profit margins.”
Whatever the viewpoints, the law is in effect and reality for Portland small businesses who will have to navigate these changes over the coming years.