On the first of the year, a minimum wage increase went into effect in 21 states. And later in the year, four more states and Washington, D.C. will raise their minimum wage requirements. Given the onslaught of changes, it’s no wonder many business owners are double and triple checking that they’re playing by the rules. Need a refresher? Here’s everything employers need to know about the latest minimum wage requirements.
Which minimum wage law should employers follow?
Depending on where your business is located, you may have more than one applicable minimum wage law. While there’s a federal minimum wage law, most states, and even some cities and counties have their own rules. So which should employers follow? Well, when more than one minimum wage law applies, employers are required to pay the hourly minimum wage that’s the most favorable to the employee. Because of this, it’s important to be aware of federal, state and local rates.
To make sure you’re current on the minimum wage rates that apply to you, check the Department of Labor (DOL) or state and local websites for location-specific minimum wage rates, and be aware of federal requirements. The federal minimum wage for non-exempt employees is $7.25 per hour, as established by the Fair Labor and Standards Act (FLSA). It was last increased in 2009 from $6.55. In some cases, states have a minimum wage that’s the same as the federal rate, such as Wisconsin, but many states have a higher minimum wage. Illinois, for example, raised their minimum wage from $8.25 to $9.25 per hour, effective January 1, 2020. And Illinois employees are set to see another increase of $0.75 this year, raising their minimum wage to $10.00 on July 1.
Are there exceptions to minimum wage requirements?
While the minimum wage requirements apply to most non-exempt employees, there are some exceptions outlined by the FLSA, including:
- Tipped employees. According to federal law, employers must pay tipped employees $2.13 an hour in direct wages. But, if employees don’t make enough in tips to earn at least the federal minimum wage of $7.25, employers are required to make up the difference. Keep in mind, many states have their own minimum wage laws for tipped employees. As with the regular minimum wage rate, employers are required to comply with the law that provides the greatest benefits to employees.
- Minors. Employers may pay a minimum wage of $4.25 per hour to workers under the age of 20 during their first 90 consecutive days of employment. After that time period, the employee must receive a minimum wage of $7.25.
- Full-time and vocational students. Certain employers, including retail or service stores, agriculture, or colleges and universities, can pay full-time students 85% of the minimum wage, as long as they are registered students. Under the FLSA Student-Learner Program, employers can pay vocational students age 16 and older 75% of the minimum wage if they obtain a certificate from the Department of Labor (DOL).
- Employees with disabilities. Under the FLSA, employers can apply for a certificate that allows them to hire disabled workers at a sub-minimum wage rate. If their disability impacts their productivity or quality of work, employers can pay them at a rate that’s lower than the federal minimum wage. This program is designed to help disabled workers find employment by making them more attractive to potential employers.
- Farm workers, seasonal workers and employees considered exempt under the FLSA. The FLSA has declared certain jobs exempt from both state and federal minimum wage laws. These exemptions are intended to enable certain businesses to hire workers for temporary or high-volume positions at a more affordable rate, which helps the economy by creating more jobs.
What’s in store for minimum wage changes beyond 2020?
As of now, there are no public plans to increase the federal minimum wage. But, many legislators have been pushing for a minimum wage increase. In July 2019, the House of Representatives passed Raise the Wage Act, which would incrementally increase the federal minimum wage by $1.10 each year, until it reaches $15.00 by 2025. However, the Senate did not take the bill to a vote, so the federal rate will stay as is for the foreseeable future.
What about at the state and local levels? Across the country, many advocates are pushing for minimum wage increases in their area, and legislators regularly introduce legislation proposing minimum wage increases. To ensure you’re up to date with the latest, keep tabs on minimum wage legislation in your area. You can do this by visiting your state’s DOL website and signing up for newsletter updates if they’re available. You can also sign up for newsletters from industry organizations, such as the American Payroll Association (APA).
Are there tools to help employers stay compliant with wage and hour regulations?
As the volume of employee information and compliance requirements rise, errors and oversights can quickly lead to regulatory penalties and other legal trouble. At some point, using paper records, spreadsheets or applications that don’t “talk to each other” just doesn’t cut it. To make managing compliance easier, employers should consider replacing disparate solutions with a full-suite, unified tool like Orbit Solutions. With all of their workforce information and tools in one place, employers can avoid compliance issues by using Orbit Solutions to:
- Reduce manual recordkeeping and activities that are prone to error.
- Set up system rules that automatically apply to employees that meet certain criteria, such as if they are exempt or non-exempt status.
- Apply complicated policies, such as those that affect employees in states with different requirements, with rule-based logic.
- Quickly pull information together to identify problems and course-correct.
- Perform “what if” scenario planning to minimize financial risk and prepare for potential minimum wage or other legislative changes.
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