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By April 12, 2016No Comments

By Brigid O’Leary

After much discussion nationwide, minimum wage is going up in two states – California and New York – with a 2023 deadline for employers in California to pay employees at least $15 per hour. In New York, where minimum wage is currently $9 per hour, some organizations will feel the pinch earlier and others won’t have to pay out quite as much. Hourly wages in New York City will hit $15 in the next two years (by the end of 2018), though the surrounding counties of Nassau, Suffolk and Westchester have until the end of 2021. Employers in the rest of the state have until the end of 2020 to get minimum wage payments to $12.50 an hour.

The Good

What these wage increases mean for the nonprofit sector is hard to say right now. Some California-based nonprofits already pay more than the minimum wage.

The Wikimedia Foundation in San Francisco is a nonprofit charitable organization dedicated to encouraging the growth, development and distribution of free, multilingual, educational content, and to providing the full content of these wiki-based projects to the public free of charge.

“At the Wikimedia Foundation, we value the people who keep our nonprofit running, and we invest in the well-being of all employees, contractors, temporary workers, and interns with fair and competitive compensation,” remarked Samantha Lien, Communications Associate for Wikimedia Foundation. “The Foundation will of course comply with all increases in line with the January 1, 2022, deadline, if not before then. Current regular staff more than meet the future minimum wage today. For our Human Resources team, this will then mean ensuring that any new hires, as well as new temporary staff, in that time frame are appropriately compensated at the new rate.”

That doesn’t mean it’s going to be easy.

The Center for Employment Opportunities (CEO) provides comprehensive employment services to individuals with recent criminal convictions.

“We run transitional work crews as a way to help people get accustomed to the world of work and then into non-subsidized jobs. We spend a lot of money on wages,” said Brad Dudding, chief operating officer at CEO, which is headquartered in New York City and has four other offices in the state but has operations in Pennsylvania, Oklahoma and California as well. “We’re already paying fairly high wages in the Oakland area; about $12.50 an hour right now, so the impact on Oakland won’t be felt for awhile. We’re just starting in the L.A. market, the San Jose market.” The organization has operations in San Diego as well.

Dudding does expect the wage increase will have some positive effects for program graduates, especially those in New York.

“On the non-subsidized employment side, it should have a positive impact on wages. Each time we’ve seen minimum wage go up, our average wage at placement goes up, too. Right now our average wage at placement is $10.50 an hour. It’s grown over the last few years because minimum wage has gone up from $6.75 to $9 an hour over the last few years. It’s going to increase the placement wage after [participants] leave CEO,” he explained.

Similarly, Jeremy Sidell, chief development officer with PATH – a family of agencies working together to end homelessness for individuals, families, and communities throughout California, with headquarters in Los Angeles – translates an increased wage to a better outcome for the people the organization helps. For PATH, however, that end result is because a higher pay-scale means they can attract or retain staff that want to make a difference in the lives of others.

“We work with a highly vulnerable population – people who have been chronically homeless, substance abuse problems, mental illness. It’s taxing on the employees themselves. We do what we can to reduce attrition and paying a decent wage is part of that,” Sidell said. “It’s something we’re always sensitive to and we want to make sure that we’re staying competitive with other job markets, even those that are not nonprofits, because if someone can go elsewhere for the same pay and less stress, why would they stay?”

For a year and a half now, PATH has been paying its staff a living wage that surpasses national minimum wage implemented and they don’t anticipate any significant changes now that a new minimum wage standard has been set.

“We’re in a unique situation,” Sidell continued. “We have a different approach to it, especially since we’re in the business of improving property. The bulk of our staff is in Los Angeles, San Diego and the Bay Area, which are some of the most expensive areas in the country.”

The Bad

That higher cost of living is a factor in the minimum wage discussion. California and New York are two of the most expensive states in which to live.

“In California, it’s been a little easier,” Dudding said. “We’ve been more successful with contracts in Oakland; when minimum wage has gone up, we’ve been able to modify the contracts. It’s unclear if we can do that in newer districts, if we’ll be able to do that at a state-wide level.”

Another factor to the argument is that a higher minimum wage is going to require more operating money just to pay employees.

“In New York we’re spending more than $2 million on wages and by minimum wage going to $15 per hour – in a few years – that’s a 67 percent increase that we’re paying participants. That’s going up to $3.5 million. That’s a real big increase and there is a question if we’ll be able to support that level of wage funding,” Dudding continued, reflecting a concern that is not uncommon among nonprofit organizations in the wake of the news.

Nonprofit organizations are stuck in the middle, needing to pay their people enough to at least meet a minimum standard from a budget that may or may not accommodate the additional expense.

The Ugly

There is one situation that will likely prove particularly challenging to nonprofit organizations facing a minimum wage increase.

“We bill rates to our customers, daily rates, and just because the state raises minimum wage, doesn’t mean the state is going to raise funding for state agencies we work for. A lot of our work is with federal agencies. Minimum wage is going up but the funding pie is not getting bigger – it’s the same size as before,” said Dudding.

In fact, Sidell pointed out that the funding pie hasn’t changed in years.

“We have seen very few increases in grants and contracts that provide for increases in salaries.  A contract from HUD comes with a line item for salaries. There has been no increase in that line item since the 1990s,” he said. “So as minimum wage increases or we made the decision to increase the living wage we pay, we have to fund that with private/foundation donations or pull it out of other areas, which is to say the services suffer.”

Sidell explained that if half the money in a grant is supposed to go to moving expenses and covers the cost of 50 new beds but the line item for salaries doesn’t cover what they need to meet whatever standard they need to provide a living wage, the organization might only be buying 40 beds so that the staff can still get paid.

It’s not just the federal government that overlooks certain details as related to minimum wage payments.

“When state government or city governments raise minimum wage that government appropriates more funds to cover minimum wage for nonprofits they’re contracting with. A lot of states, before minimum wage laws have been passed, raise wages for state workers or university workers,” Dudding said. “They’ve not had issues with increasing the minimum wage for state employees, but it’s been more of a struggle to get increases for service providers when minimum wage goes up.”

Reality Bites

The new minimum wage in both states, signed into law last week, doesn’t mean an overnight increase. Organizations in those states have time to figure out how it’s going to work for them.

In New York, CEO has about nine months before the first increase hits.

“It’s too early to know what the effects are going to be with the increase in minimum wage. It’s going up to $11/hr in January, so we’ll start to get a sense then of whether people are willing to cover that new funding gap or not,” said Dudding.

The team at Wikimedia is confident that they are ready for any such changes coming their way from the increased minimum wage.

“Our HR team expects a smooth transition without any negative impacts to the Foundation or the well-being of staff, contractors, temporary workers, or interns,” said Lien.

Sidell, like Dudding, is cautious about what the new minimum wage is going to mean in the long run.

“There are other impacts that are harder to see until they trickle down a little bit,” he said, noting that even with the yet-to-be-known challenges the new minimum wage might throw their way, PATH remains committed to its mission of getting people off the streets. “You can’t end homelessness without a house,” he said, adding that the organization’s goal is to house 20,0000 people by 2020.

That’s the reality of the situation. It’s challenging. Organizations are going to have to face the minimum wage increase and the challenges that come with it – some of which won’t arise until later on – while staying true to the nonprofit’s mission. It’s also a complicated situation, because there are benefits to it, too, and whether or not the benefits outweigh the challenges might differ for every organization.

“We’re in the business where, we obviously see the value of rising wages for our participants, and we’re very happy about these developments about trying to create a more living wage for all workers, but it’s not uniformly positive for the organizations that are supporting these participants,” said Dudding. “It’s important for people to be aware that there is a negative impact for social services of organizations trying to increase the employment skills for under-served populations.”

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