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Friday, April 1, 2016

Gearing Up for Higher Minimum Wage: Part 1

Posted by tschulte

Living Wages and Your Nonprofit

In theory, the new minimum wage laws being adopted by an increasing number of California municipalities should be something that all of us involved in the nonprofit sector can get behind.

Living-wage advocates make the case that higher pay lifts workers out of poverty and pumps dollars back into the local economy – potentially benefiting many of the clients nonprofits serve.

Yet, a mandatory wage increase leads to the age-old question, “Can we afford it?”

Hang On for the Ride

Statewide, California’s minimum wage increased to $10 at the first of the year. Locally, Los Angeles’ plans to increase the minimum wage goes into effect July 1, 2016, when minimum pay will be pushed to $10.50 an hour. Wages will gradually increase to hit $15 an hour by 2020.

The challenge is that most nonprofits have no direct means of absorbing wage increases – especially when so many California nonprofits have experienced stagnant or decreasing revenue. In addition, wage increases are particularly tough on nonprofits that rely on state funding.

Case in point: Lincoln Training Center, 50-year-old, El Monte-based nonprofit

serves more than 500 developmentally disabled adults annually, providing job training and practical work experience at companies such as Nordstrom, Nissan and Home Depot.

President Caron Nunez notes recent minimum wage increases are expected to impact the center pretty significantly. “It’s going to be difficult to make up the cost. The new law is impacting our ability to balance our books,” she says. Nunez also points to the problem of pay compression, which occurs when wage increases bump up pay regardless of experience, skills, level or seniority – making starting pay for new employees too close to (or even exceeding) the wages of existing workers.

Over in North Hills, New Horizons, a 62-year-old nonprofit that helps some 1,000 special needs clients gain work experience, is likewise impacted. “On one hand, we appreciate that a living wage can absolutely help pull someone out of poverty,” says President and CEO Cynthia Sewell. “But, at the same time, we have never seen an accelerated increase like this before – and it’s hard to keep pace.”

So what will California nonprofits do to balance the rising cost of employee wages with serving the needs of their communities?

In part two of this blog series, I’ll share with you what some of Armanino’s current nonprofit clients in Los Angeles are doing to proactively mitigate some of the “risk” that comes with rising wages.

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