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How California’s Minimum Wage Increase Could Impact Your HOA

Recently passed amendments to sections 245.5, 246, and 1182.12 of the California State Labor Code will result in an approximately 50% minimum wage increase, culminating in a $15/hour wage by January 1, 2023. These changes will bring new challenges to your community’s board and budget since hourly wages have a direct impact on your association’s cost of doing business. Foresight and strong planning will help ensure that your community is well prepared for fiscal changes in the coming years.

Not every area will experience the same increase

The minimum wage rate and period of implementation will vary by county, so not every community will be impacted equally. Review the chart below to see how the increase in minimum wage for the upcoming years will impact your area.

Vendors that are vital to your community

Many of the vendors you rely on to provide service for your community employ a labor force of hourly workers, most of whom are paid at minimum wage level or slightly above. These services are crucial to maintaining an attractive, safe and enjoyable community and include landscaping, pool, security and janitorial companies. Other vendors with a significant administrative labor pool will also feel the impact of wage increases. Since State wages have historically risen from 1% to 3% annually, this change represents a significant increase for vendors who may be forced to pass these costs along to their clients: your association.

Additional municipal costs

Minimum wage rates hikes also increase pressure to raise wages for skilled and tenured employees. This can result in additional costs for municipal services such as water, power, and gas. Once again, these costs will likely be passed along to your association in the form of higher utility bills. Build these increases into your annual budget.

Communication is key

Ask your community manager to reach out to your vendors to discuss how wage increases will affect their contract with your association. Be sure to actively communicate this issue to homeowners, so they are aware of the potential impact on the association’s budget. Your HOA management company can help prepare information packets, facilitate Q&A sessions and provide content for newsletter updates.

Monitor your budget

As mentioned above, these changes will result in a direct impact on your association’s annual budget. Avoid surprises by anticipating gradual increases beyond your regular budget allowance. Your HOA management company can help you manage expectations by including any increases submitted thus far by your association’s vendors. Your management company will play a proactive role in overseeing your budget’s bottom line and continue to keep you informed about the law’s impact in the coming years.

Remember that the authority to approve budget increases lies solely with your board. Though your HOA management company will provide a proposed budget, it’s the board’s responsibility to decide whether or not to increase assessments or redistribute funds within the budget. If raising assessments is required, we recommend enacting a gradual year-over-year increase to make the changes more palatable to your association’s membership.

Evolving budgetary requirements are a part of managing any corporation. Your homeowners association is no different. With the appropriate amount of organization, planning, and communication, you can ensure that your HOA is well prepared and adequately funded to take these changes in stride.

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