Another Big Change in Minimum Wage Coming

(Labor Letter, April 2008)

Effective on Thursday, July 24, the federal Fair Labor Standards Act's minimum wage rises again from $5.85 to $6.55 per hour. This is the second step of the three-stage increase that became law last year. On July 24, 2009, the rate will jump to $7.25 per hour.

Even employers who customarily pay more than the FLSA's minimum wage should consider the potential ripple effects of this change.

Retail Employers

For example, some employers in various retailing fields rely upon the FLSA's special overtime exception for commission-paid employees in retail or service establishments. The minimum-wage change will have a significant impact upon this exception, because it requires in part that an employee's average or "regular" hourly rate in an overtime workweek be more than 1.5 times the FLSA's minimum wage. Consequently, this floor goes up with each step-increase in the minimum wage.

Tipped Employees

The FLSA's $2.13-per-hour cash-wage required for employees as to whom a tip credit is claimed will stay the same. Even so, the higher minimum wage will mean that employees' received-and-retained tips must be sufficient to bring their total straight-time wages (the cash-wage paid plus the tip-credit taken) to at least the new FLSA minimum wage.

In most cases, this shouldn't be a problem, assuming the employees are retaining healthy amounts in tips – but an employer will have to prove that this is so if there is ever a legal challenge.

Other Jurisdictions

You must also comply with any higher minimum-wage requirement under an applicable state or local law. Some states have already raised their own minimum-wage levels beyond the current FLSA figure (and in certain instances even those to come). Others have provided for their own thresholds to move in tandem with the federal rate. And as with the FLSA, exemptions or exceptions under another jurisdiction's wage-hour law could be affected by any FLSA-provoked changes in that law's minimum wage.

Employee Expectations

Management might well face pressure to increase compensation even for more-highly-paid employees. This could arise from at least two sources: 1) employee expectations flowing from extensive media coverage of the minimum-wage jump; and 2) any wage compression resulting from increasing the lowest pay levels.

For instance, as the difference decreases (or even disappears) between the salaries of first-line supervisors versus the hourly-plus-overtime wages of nonexempt employees, this can lead to unhappiness among the higher-level group.

What Should You Do?

Noncompliance with wage-hour requirements has become one of the prime sources of employment-law claims. The inevitable publicity about the new FLSA minimum wage could cause employees to focus anew upon their compensation. Our advice is that you should immediately evaluate whether changes are necessary to eliminate any questions about your compliance status.

Such a review ought to include more than just minimum-wage considerations. It should extend to things like overtime pay, wage deductions, tip-credit systems, timekeeping practices, and exemption classifications, as well as whether individuals categorized as "independent contractors" or "volunteers" are, instead, really employees for wage-hour purposes. Potential problems in these areas and others are high on the priority list of plaintiffs' lawyers around the nation.

<< Return to listing