By Jay Starkman
In January, President Obama signed an executive order increasing the minimum wage for employees of federal contractors from $7.25 to $10.10, an increase of approximately 39 percent. That change only impacts an employer when they enter a new contract with the federal government. In his State of the Union Address a few days later, the President called for Congress to similarly increase the federal minimum wage for the private sector, something he cannot do unilaterally.
The federal minimum wage, which still stands at $7.25, creates a minimum that must be adhered to by employers across all states. However, a state is permitted to set the minimum wage for employees within its borders that is greater than the federal minimum wage. As of January 1, 2014, 21 states and the District of Columbia have a minimum wage that is greater; 20 states have a minimum wage that is the same ($7.25); 4 states have a minimum wage that is below; and 5 states have not established a minimum wage. Additionally, 13 states have passed legislation that increases their minimum wage in 2014, led by California, which raised its minimum wage over the next 3 years to $10.10.
Public opinion supports a federal increase in the minimum wage, with roughly 70 percent of Americans supporting the President’s call to raise it. The issue remains a partisan one and is stalled in Congress. Supporters of the minimum wage increase argue that (1) gainfully employed Americans are still below the federal poverty line at today’s minimum wage and (2) that raising the minimum wage will benefit the economy by creating more disposable income in the nation’s lowest earners. On the other hand, opponents of the change argue that raising the minimum wage will result in (1) employers eliminating jobs and (2) a higher cost of goods and services.
Monitoring and complying with the applicable laws to pay the correct amount to employees presents a challenge to companies, especially those that have employees in multiple states. This is especially important, as a failure to compensate employees at the applicable minimum wage in a state carries stiff penalties. Expert advisors, including Professional Employment Organizations can provide an invaluable service in this regard.
Jay Starkman is CEO of Engage PEO. Engage provides hands-on, expert HR services and counsel to help clients minimize cost and maximize efficiency for stronger business performance through a full range of health and worker’s compensation insurance products, payroll technology and tax administration, risk management services and best-of-breed technology as part of an extensive suite of HR services. For more information visit www.EngagePEO.com.