Industry Market Trends

Minimum Wage Hike Takes Effect Tomorrow

Jul 23, 2007

In May, Congress passed and President Bush signed the first federal minimum wage increase in a decade. Tomorrow's increase, the first of three planned through 2009, is expected both to provide only meager help for workers and to have minimal impact on most employers nationwide.

For the first time in a decade, the federal minimum wage will rise tomorrow: from $5.15 to $5.85 an hour.

The minimum wage will increase by 70 cents again to $6.55 on July 24, 2008, and once more on July 24, 2009, ending at $7.25 per hour.

And while "many lawmakers, along with advocates for low-wage workers, are celebrating tomorrow's increase in the federal minimum wage … many acknowledge that raising it from $5.15 to $5.85 will provide only meager help for some of the lowest paid workers" (Associated Press). While helpful to employees, the impact appears to be minimal.

AP reports:

Minimum wage workers will get an additional 70-cent boost each summer for the next two years, ending in 2009 at $7.25 an hour. That comes to just above $15,000 yearly before taxes for a 52-week work year. Now, someone in such a job and earning $5.85 an hour would bring home $12,168 a year before taxes. The federal poverty level for singles is $10,210, couples is $13,690 and $17,170 for families of three.

About 1.7 million people made $5.15 or less in 2006, according to the Labor Department's Bureau of Labor Statistics. A full-time worker making $5.15 an hour earns $10,712 a year, according to numbers from the Economic Policy Institute.

Moreover, tomorrow's increase is expected to have minimal impact on most employers nationwide, according to CCH Internet Research Network, considering that 32 states and the District of Columbia have already established minimum wage levels higher than the new federal level.

"Over the last 10 years, while the federal minimum wage has been steady at $5.15 per hour, more and more states have set their minimum wages above that, and above the new minimum as well," said Barbara O'Dell, CCH workplace analyst, in a statement. "Employers, especially those who operate in several different states, will have to keep aware of a changing environment as federal and states' rates criss-cross in the years ahead."

Plus, as employers seek to attract talented employees, the supposed unavailability of qualified employees has caused many employers to raise wages beyond both their state and federal minimum wage requirements. In fact, according to a survey of 18,000 small businesses by national payroll service provider SurePayroll earlier this year, the majority of small business owners (51 percent) didn't even know the minimum wage required in their state.

According to the survey:

Of the small business owners surveyed by SurePayroll, only 3 percent pay the national minimum wage to some of their employees. Only 6 percent of the respondents pay a state-mandated minimum wage to some of their employees. The remaining respondents (91 percent) are not affected by minimum wage laws because they pay all of their employees more than the minimum wage.

Where state and federal minimum wage rates differ, the higher rate prevails.

Some quick facts from CCH:

Alabama, Louisiana, Mississippi, South Carolina and Tennessee do not have state minimum wage laws, so employers must pay the federal rate to employees who are subject to the Fair Labor Standards Act (FLSA).

In Georgia, Kansas, New Mexico, Utah and Wyoming, the state minimum wage rates are lower than the revised federal rate, so employers must pay the federal rate to employees who are subject to the FLSA.

In Idaho, Indiana, New Hampshire, North Dakota, Oklahoma, South Dakota, Texas and Virginia, the state rates are tied to the federal rate and will automatically increase.

In Minnesota, Montana and Nevada, some employers currently paying a state-authorized lower minimum wage based on their size or offering benefits will be affected by the federal increase.

The EPI says, "This bill will provide a wage boost for 12.5 million workers." (The EPI also provides a handy state-by-state projection of the required minimum wage by date, from May 25, 2007 to July 24, 2009.)

Meanwhile, AP points out a PNC Economic Outlook survey done in April that showed three out of four small- and middle-market business owners said raising the minimum wage would have little or no impact on their businesses.