How Do Minimum Wage Increases Affect Janitorial Contracts?

When California and local minimum wages change

Under Labor Code section 1182.12, the Director of Finance calculates the next statewide rate by August 1 each year, and it takes effect the following January 1. The increase is the lesser of 3.5 percent and the change in the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers, and the rate does not go down when inflation is negative. Local ordinances add their own schedules on top, and the higher of the state and local rate applies at each address.

How a minimum wage increase flows through a janitorial contract price

The hourly wage is only the start. Employer payroll taxes rise with it, workers' compensation premiums are rated on payroll, and paid sick leave is paid at the employee's regular rate. Supervisors are affected too: Labor Code section 515 requires exempt employees to earn a salary of at least twice the state minimum wage for full-time work, so their floor moves every January.

Then there is compression. Crew leads and experienced cleaners who earn a little above the minimum expect their differential to survive the increase, and a vendor that ignores that loses its best people. Supplies, equipment, insurance other than workers' compensation, and overhead do not move with the wage in the same way, which is why a fair adjustment applies to the labor portion of the price rather than the whole invoice.

What a janitorial wage escalation clause should say

A good clause removes the negotiation from each increase by agreeing the arithmetic in advance. It should be specific enough that either party can calculate the new price from published wage figures and the hours already set out in the scope.

• Trigger: any change in a federal, state or local minimum wage or legally mandated benefit that applies to workers on the site
• Scope: the labor portion of the price only, with supplies and other costs handled separately
• Method: the per-hour increase times scheduled hours, plus the payroll costs that scale with wages
• Timing: effective on the date the law takes effect, not the next renewal
• Notice: written notice with the calculation attached, delivered ahead of the effective date
• Evidence: access to the hours and wage rates used, for the labor portion only
• Compression: whether raises for staff above the minimum are included, stated either way

Why an unadjusted price is a risk for the client too

California Labor Code section 2810 says a person or entity may not enter into a contract with a janitorial contractor when it knows or should know that the contract does not include funds sufficient for the contractor to comply with applicable labor laws. A fixed price that never moves while the wage floor rises can drift toward that line. Even short of legal exposure, an underfunded contract shows up in the building as turnover, short-staffed nights and tasks quietly dropped from the scope.

Local minimum wage rules across a multi-city portfolio

Portfolios that span several cities face different rates on different dates. A building inside the City of Los Angeles and one in Orange County can sit a few miles apart and carry different wage floors from July onward. Contracts covering several sites should name the wage rate assumed at each address, and budgets should place July increases in the right fiscal period. Check, too, whether a site falls under an industry-specific rule, such as California's health care worker minimum wage (Labor Code section 1182.14) at covered health care facilities.

How EBS approaches wage changes in its pricing

EBS has more than 100 employees working at sites across Orange, Los Angeles, Riverside, San Bernardino and San Diego counties and the Coachella Valley, so these wage calendars are part of every year's planning. Proposals are built from the labor your scope needs, after a supervisor has walked the building, which means the effect of a wage change on the price can be traced to hours and rates rather than estimated.