Benefits and Compensation

HRDA News Extra: How the Federal Minimum Wage Increase Will Affect You

Because of interactions with state law, the federal minimum wage increase, which takes effect July 24, will have different effects on the various states. BLR Editor Sean Dean prepared the following state-by-state analysis for the subscription website, HR.BLR.com. We’re happy to bring it to HRDA readers as well.

After years of debate, President Bush finally signed legislation, on May 25, that increases the federal minimum wage to $7.25 per hour in three steps over a period of 26 months. The changes will affect employers in different ways, depending on the state in which their employees work. Here’s what to expect:

The federal minimum wage will increase from $5.15 per hour to:

  • $5.85 60 days after enactment (i.e., effective, July 24, 2007),
  • $6.55 1 year after the first increase (July 24, 2008), and
  • $7.25 2 years after the first increase (July 24, 2009).

Employers in these 17 states will see their minimum wage increase in lockstep with the increases outlined above:

  • Alabama
  • Georgia
  • Idaho
  • Indiana
  • Kansas
  • Louisiana
  • Mississippi
  • Nebraska (State law is not tied to federal law, so employers covered by state but not federal law will not be required to pay federal minimum wage.)
  • North Dakota
  • Oklahoma
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah (The state’s minimum wage does not apply to anyone entitled to the federal minimum wage.)
  • Virginia
  • Wyoming (Like Nebraska, Wyoming’s law is not tied to federal law, so employers covered by state but not federal law will not be required to pay federal minimum wage.)

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The Other States

The federal changes will have a different effect in the states that had already set the state minimum wage above the old federal minimum. Some had decided to raise their minimums incrementally, but at a different pace from the federal. Because federal law covers nearly all employees, employers may effectively ensure compliance with both federal and state law simply by always paying the rate most beneficial to the employee. Here’s a detailed rundown on these states:

The change on the federal level will generally have no effect on employers in these eight states because they currently have minimum wages at or above $7.25 per hour:

  • California
  • Connecticut
  • Hawaii
  • Massachusetts
  • Oregon (indexed to inflation)
  • Rhode Island
  • Vermont (indexed to inflation)
  • Washington (indexed to inflation)

Four additional states (Illinois, Iowa, Kentucky, and Michigan) have minimum wages currently lower than $7.25 per hour, but their minimum will rise to or above that level at a faster pace than the federal:

  • In Illinois, the state minimum wage (currently $6.50) will rise to $7.50 in July 2007, $7.75 in July 2008, $8.00 in July 2009, and $8.25 in 2010.
  • In Iowa, the state minimum wage (currently $6.20 per hour) will rise to $7.25 per hour on January 1, 2008.
  • In Kentucky, the state minimum will increase from $5.15 per hour to $5.85 per hour beginning July 1, 2007. Beginning July 1, 2008, it will rise to $6.55 per hour, then to $7.25 beginning July 1, 2009.
  • In Michigan, the state minimum wage (currently $6.95) will rise to $7.15 on July 1, 2007, and to $7.40 on July 1, 2008.

In these seven states, employers won’t be affected by the federal changes until the second step (when the federal minimum wage rises to $6.55 per hour). These states are:

  • Arkansas (The state minimum wage is $6.25.)
  • Maryland (The state minimum wage is $6.15.)
  • Minnesota (The state minimum wage is $6.15 for large employers. Employers with annual sales under $625,000 can pay $5.25 under state law—but smaller employers that are covered by the FLSA [i.e., have $500,000 or more in annual sales] will be affected by the federal minimum wage increase this year.)
  • Missouri (The state minimum wage is $6.50 and is indexed to inflation.*)
  • Montana (The state minimum wage is $6.15 and is indexed to inflation.*)
  • North Carolina (The state minimum wage is $6.15.)
  • Wisconsin (The state minimum wage is $6.50.)

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Employers in these 10 states generally won’t be affected by the federal changes until the third step (when the federal minimum wage rises to $7.25 per hour):

  • Alaska (The state minimum wage is $7.15 per hour.)
  • Arizona (The state minimum wage is $6.75 and is indexed to inflation.*)
  • Colorado (The state minimum wage is $6.85 and is indexed to inflation.*)
  • Delaware (The state minimum wage is $6.65 per hour. It increases to $7.15 on January 1, 2008.)
  • Florida (The state minimum wage is $6.67 and is indexed to inflation.*)
  • Maine (The state minimum wage is $6.75, rising to $7.00 on October 1, 2007.)
  • New Jersey (The state minimum wage is $7.15 per hour.)
  • New York (The state minimum wage is $7.15.)
  • Ohio (The state minimum wage is $6.85 and is indexed to inflation.*)
  • Pennsylvania (The state minimum wage is currently $6.25, increasing to $7.15 on July 1, 2007.)

In New Hampshire, the minimum wage will switch back and forth between federal and state levels, always hewing to the higher. Unless state law changes, New Hampshire employers will pay a minimum wage of:

  • $5.85 per hour, beginning July 24, 2007 (federal law)
  • $6.50 per hour, beginning September 1, 2007 (state law)
  • $6.55 per hour, beginning July 24, 2008 (federal law)
  • $7.25 per hour, beginning September 1, 2008 (state law)

In New Mexico, employers will also see the minimum wage switch back and forth in four steps:

  • $5.85 per hour beginning July 24, 2007 (federal law)
  • $6.50 per hour beginning January 1, 2008 (state law)
  • $6.55 per hour beginning July 24, 2008 (federal law)
  • $7.50 per hour beginning January 1, 2009 (state law)

In Nevada, the state minimum wage rate depends on whether employers offer health benefits. If an employer provides health benefits, current state law requires a minimum wage of $5.15 per hour. If an employer does not provide them, the rate is $6.15 per hour. Under an annual adjustment required by law, these rates will increase to $5.30 and $6.33, respectively, on July 1, 2007. Future annual adjustments will be the greater of:

  • The amount the federal minimum wage increases over $5.15 per hour, or
  • A cost-of-living increase of up to a maximum of 3 percent per year.

In West Virginia, the state minimum wage is $5.85 per hour, or the federal minimum wage, whichever is higher. Effective July 1, 2007, the state minimum will increase to $6.55, and on July 1, 2008, to $7.25. West Virginia ‘s state minimum wage law doesn’t cover a private employer if 80 percent of its employees are subject to any federal law that affects minimum wages, maximum hours, or overtime compensation (e.g., the FLSA). Because FLSA coverage is so universal, the increase in the state’s minimum wage has no practical effect, as virtually all private employees are exempt in one way or another.

Finally, what about the center of the wage increase storm? The District of Columbia ‘s minimum wage, currently $7.00 per hour, is always $1.00 per hour higher than the federal, so the federal change will have an impact next year.

  • In states with minimum wages indexed to inflation, annual adjustments could affect whether the applicable minimum wage is at the federal rate or state rate.

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