Debating the Living Wage Requirements Imposed on Nonprofit Employers

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October 22, 2014; LAist


Los Angeles Mayor Eric Garcetti wants to raise the minimum wage in Los Angeles to $13.25 over a three-year period. Four members of the City Council—Mike Bonin, Nury Martinez, Curren Price, and Gil Cedillo—would prefer a minimum wage of $15.25 by 2019. Another strong proponent of a living wage, the Los Angeles Alliance for a New Economy, wants a $15 minimum wage.

Not so fast, say Council members Mitch O’Farrell and Bob Blumenthal, who have introduced an ordinance to request a study by the city of the pros and cons of a minimum wage increase. Their proposal was seconded by three other members of the council, including Martinez, who supported the $15.25/hour minimum wage proposal. While O’Farrell focused on the impact of a minimum wage hike on small businesses, Blumenthal expressed concerns about the impact of the minimum wage on nonprofits, suggesting a possible nonprofit exemption. For example, he worried that Valley Village’s programs for the developmentally disabled would be threatened.

Do nonprofits want or need an exemption from an increased minimum wage? Asking about “all nonprofits” is an absurdity, since nonprofits are exceptionally diverse in terms of their financial stability and program arrays. But groups such as state and national nonprofit associations, as well as various subsectoral nonprofit trade associations, often do speak for the nonprofit sector and, either by omission or commission, have taken a stand on the applicability of living wage proposals to tax exempt 501(c) organizations. Taking a stand on these proposed ordinances requires state associations and all nonprofit trade and industry groups to think long and hard about the implications of what they might say. 

Living wage ordinances frequently exempt certain categories of nonprofits. Sometimes, the exemption is generically applicable to nonprofits across the board. For example, the living wage law signed recently by New York City Mayor Bill de Blasio excludes nonprofits, developers of affordable housing, and businesses with less than $3 million in revenues. With those limitations, it’s reasonable to ask whether the New York City ordinance will affect many people at all.

Increasingly, the sentiment among political leaders is that nonprofits may not always warrant the exemption. In some living wage ordinance structures, nonprofit organizations have an opportunity to demonstrate a need to be exempted from the wage increase. For example, in Ann Arbor, the Community Action Network applied for exemption from the local living wage ordinance, which the original ordinance permitted based on need. However, in granting the exemption from the ordinance, CAN had to submit a plan to demonstrate how it would come into compliance with the living wage rate (at that time, in 2012, $12.17 an hour for employers paying for health insurance, $13.57/hour for those not providing health insurance) in three years.

This month, Ann Arbor passed an ordinance revision raising the threshold for living wage exemption for human service nonprofits from $10,000 in annual city contracts to those with more than $25,000, freeing more nonprofits from the living wage ordinance. The city’s Housing and Human Services Advisory board recommended against the change, arguing that it would provide an exemption to nonprofits that hadn’t asked for it and may not need it, but the City Council accepted the change.

Oakland, California’s minimum wage ballot initiative would raise the city’s minimum wage from $9.00, higher already than the federal minimum wage, to $12.25. A suggested compromise would have given some nonprofit service providers and government-funded training programs a period of time to come into compliance, but that provision was not added to the ballot proposal. Arguing against the across-the-board wage raise, some nonprofits contended that the minimum wage increase would reduce their available funding for training programs.

The fundamental premise of living wage campaigns is that the wage boost above minimum wage is necessary for reducing working poverty. Should nonprofits be exempt from paying a living wage because they deliver a public or charitable service? If living wage ordinances are enacted, will government authorities boost their contract amounts with nonprofit service providers to compensate them for the extra moneys they will have to pay in wages? Where do nonprofits stand on living wage campaigns now that the proposals increasingly look more like those in Los Angeles, Oakland, and Ann Arbor and less like New York City’s?—Rick Cohen


  • Jan Masaoka

    Thank you for this article, and there are other issues to add to the mix. Nonprofit leaders WANT to support minimum wage increases; the issue is structuring those increases in ways that don’t hurt nonprofit organizations or their constituents. Many nonprofits have government contracts which pay at minimum wage, so increases in the minimum wage MUST be matched by increases in those contracts. Another key nonprofit concern is that laws must be structured so that low-income workers do not lose their eligibility for SSI, Section 8 housing, or MediCal (MediCare in California).

    We at the California Association of Nonprofits –CalNonproifts — will be polling nonprofits in mid-November to learn more. If you’re a California nonprofit — watch your Inbox for it! Jan Masaoka, CEO, CalNonprofits

  • Weldon

    I’ve worked in the not-for-profit sector for the past 20 years, and this issue has been discussed in-depth in recent years. There is a certain hypocrisy to suggest that small business should pay a living wage, but the not-for-profit sector should have an exemption. Not-for-profits can’t afford the increase in costs but the small business sector can?

    Perhaps the underlying issue in this discussion is being missed…poverty is primarily a “social” issue (resulting from housing costs and other costs of living). Increasing the living wage will increase the costs of products and services; thus, perpetuating the problem. Why should the small business community bear the brunt of these social issues?

    Should this not be dealt with through social and government policy; as opposed to placing the burden on small business (and, not-for-profits)?

  • Robert Francis

    I just had an article on this topic published at The Christian Century: Many nonprofits feel stuck between what they want to do and what their bottom line allows.