Do you know what is happening in July? No, not just Independence Day, as important as that is. It’s “raise” day. If you have any employees that currently earn minimum wage, expect to pay them more – 70 cents more per hour, in fact – beginning on July 24th. This is the day the Federal Fair Labor Standards Act (FLSA) increases the federal minimum wage to $6.55 from the current $5.85 per hour. But wait, there’s more: exactly one year later, the minimum wage will increase to $7.25.
If you have a business where minimum wage really is a factor (i.e., you pay one or more employees the minimum wage), don’t forget about this increase. Failure to comply with the FLSA wage laws carries a fine of up to $1,000 per violation, plus you will still owe the underpaid wages. So how do you know if your business is subject to the minimum wage laws? You can take the shotgun approach and assume that any business, including yours, is subject to payment of the minimum wage. This certainly keeps you safe, but is it the best approach? Let’s see if there are any exclusions or exemptions from the new laws.
If your business operates in interstate commerce, you’re probably subject to the minimum wage law, because the law applies to all businesses engaged in interstate commerce. For example, if you are engaged in a transportation industry like trucking, the communications industry, or even take orders to be shipped over state lines, your company is engaged in interstate commerce and subject to the federal minimum wage laws. Employees of federal, state or local governments and, in general, domestic workers are also subject to the FLSA.
If your business does not operate in interstate commerce, it may not be subject to the federal minimum wage laws. Federal law also applies to businesses with gross revenue of at least $500,000. This does not, however, mean you can pay whatever rate you wish. Nearly every state regulates wage payments and, for the most part, state laws require higher wages than the federal law. Make sure you know the law in your state.
Employees under 20 years old may be paid just $4.25 per hour during the first 90 consecutive days of employment. This works to the advantage of seasonal employers - like those who hire teens for summer jobs - but don’t try to turn your employee base every 90 days. The law specifically states that employers may not fire higher paid employees to replace them with workers subject to this provision.
If you hire certain full-time students, apprentices and/or disabled workers, you may be able to pay less than minimum wage. In some instances, the Department of Labor can issue certificates that exempt employees in this category from minimum wage laws. Do not pay less than the minimum wage without such authorization.
Perhaps one of the most widely used exemptions applies to restaurant workers and those who receive a substantial income from tips. These employees can be paid as little as $2.13 per hour, but if they do not earn the minimum wage - after accounting for the tips plus $2.13 per hour - the employer has to make up the difference. Certain other requirements must also be met.
So far, we’ve discussed the rules on paying the minimum wage, but are there any drawbacks to paying this wage? Granted, there are often good business reasons to pay employees only the minimum wage, but sometimes the old adage, “You get what you pay for,” is true. When you make hiring decisions, take into account the benefit of paying slightly more if you can get a higher caliber of employee. It never hurts to pay an employee what he or she is worth.
July 24th is an important day for any employer paying the minimum wage - if you fall into this category, be certain to plan ahead. Not only must you adjust your employee’s payroll records, but you must also make sure you have sufficient funds to pay the employees. This is especially true if you have a significant group of minimum wage employees. Give us a call if you have any questions or need assistance in planning the transition for higher minimum wage payments.
Have a great June!