Some Nonprofits at Loss on How to Pay Hikes

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Ron Cohen wants to pay his all employees fairly, but new mandatory minimum-wage increases threaten to have the opposite effect: They might end up forcing him to shutter the nonprofit he runs and put them all out of work.

Cohen is chief executive of United Cerebral Palsy of Los Angeles, Ventura and Santa Barbara Counties. The nonprofit’s biggest expense is payroll for employees who assist patients with other daily chores. Those employees typically earn just above the minimum wage, which increased statewide on Jan. 1 to $10 an hour.

Cohen estimated the first wave of wage increases would cost his organization nearly $600,000 in the first year. By the time all the wage increases are finished in 2022, they will have added nearly $5 million to his current payroll of nearly $19 million.

For Caps Payroll Services of Culver City, the series of upcoming minimum-wage hikes represents something of an opportunity. Many of the entertainment industry payroll company’s clients employ minimum-wage workers; some as production assistants and others working live concert venues.

Companies face a bewildering schedule of increases every six months for the next six years, adjustments that range from 50 cents to $2 an hour, depending on the year. While this might cause nightmares for a bookkeeper, payroll service companies have spent months gearing up for these hikes, entering all the wage-increase schedules into their computer programs.

“We’ve been busy reprogramming all our data tables, so that all one has to do is enter the ZIP code where a specific employee works and up pops the minimum wage they must be paid over the next six years,” said Doug Silvester, Caps’ chief executive.

Silvester said that as the minimum-wage increases bear down, he expects entertainment companies not now using payroll companies to make the switch.

“Our sales proposition is based on the notion that wage and hour laws will continue to get more complex,” he said. – Howard Fine

The trouble is United Cerebral Palsy receives the lion’s share of its funding from the state, and that funding has only increased slightly this year – barely enough to cover the hike in the minimum wage this year. And no funding increase is slated for next year, when the nonprofit will be required to raise wages again.

“The state is our only paying customer,” Cohen said. “If they don’t raise our funding to offset the cost of these minimum-wage hikes, there’s no way we can survive. That’s why this issue is now our No. 1 concern.”

United Cerebral Palsy is one of 10,000 nonprofits in Los Angeles County, many of which employ workers at or near the minimum wage, according to the Center for Nonprofit Management in downtown Los Angeles. And while few nonprofits might face such dire straits as United Cerebral Palsy, many are scrambling to cut costs in order not to scale back their services.

“Nonprofits are different than most businesses, where other strategies exist, including price increases,” said Mark Wilbur, chief executive of the Employers Group, an L.A. human resources consulting organization. “Most nonprofits live hand to mouth through contributions and fundraising activities and don’t have the ability to simply dial up extra donations without the programs to go with it.”

City officials granted most nonprofits a delay in the annual minimum-wage increases. So, instead of the wage going up next month to $10.50 an hour as it will for most businesses with more than 25 employees, the city is allowing most nonprofits to put off the implementation to July 2017.

But that picture has been scrambled by the statewide hikes in the minimum wage that Gov. Jerry Brown signed into law earlier this year. Now, nonprofits have until Jan. 1 to raise their wage to $10.50 an hour.

All these delays do is postpone by a few months the ultimate reckoning that Cohen and others will face.

“Unless governments come up with more funding, we’re not going to be able to make up this huge difference with bake sales or bingo games,” he said.

Andy Bales, chief executive of the Union Rescue Mission on downtown L.A.’s Skid Row, said he faces a similar situation.

Bales said the statewide minimum-wage increase to $10 an hour on Jan. 1 cost his nonprofit about $128,000; the city’s July 1 minimum-wage increase will cost him an additional $30,000. Total payroll is now nearly $7 million, about one-third of the nonprofit’s budget.

Bales said the mission has embarked on a major capital campaign, but if that doesn’t raise enough money to deal with the wage increases, staff and service cutbacks will be necessary.

“We’re very nervous looking forward and these minimum-wage increases have now become our No. 1 concern,” said Bales.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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