Seattle, home to Starbucks and 1990’s grunge music, is setting a new trend. Since 2009, the federal minimum wage has held steady at $7.25. Individual states and cities, however, have the authority to set higher minimum wage rates. Seattle’s recent announcement of an incremental minimum wage increase put it at the forefront of the minimum wage movement.
The city’s journey to a higher minimum wage officially began when all Seattle businesses were required to pay workers at least $11 per hour by April 1. By 2020, all businesses operating under Seattle’s jurisdiction will be required to pay a minimum hourly rate of $15. The move will give Seattle the highest minimum wage rate in the country, and many hope Seattle is introducing yet another trend that will take hold elsewhere.
The minimum wage debate has also been heating up nationally. Despite large retailers, such as Wal-Mart and T.J. Maxx, and fast food chains such as McDonald’s and Domino’s implementing wage increases for their employees, workers across the country are staging protests to urge employers to meet Seattle’s $15 minimum wage.
For and against
Proponents for the steep increase contend even full-time employees cannot live on a minimum wage income. They say a higher minimum wage could add to workers’ disposable income, thus strengthening the overall economy while attracting better talent to minimum wage jobs.
Opponents, however, contend increasing the minimum wage will force businesses to raise prices, reduce hours or lay off workers in order to cover the added expense. And while opponents agree a higher wage would attract more skilled workers, they are quick to say those employees would displace existing minimum wage workers.
Regardless of where you stand on the issue, as an employer it’s important to know your obligations and options with regard to the minimum wage.
Letter of the law
Unlike other employment laws that exempt small businesses, the Fair Labor Standards Act’s minimum wage laws apply to all businesses with $500,000 or more in annual sales. Even if your company doesn’t meet that federal threshold, local statutes might still impact your business regardless of its size or sales.
Businesses are obligated to pay whichever minimum wage rate is highest — federal, state or local — so if the city where your company operates imposes a lofty minimum wage, you must pay that rate.
While the minimum wage is an hourly rate, you don’t have to pay your employees by the hour, you can pay a salary, a commission, wages plus tips or piece rate.
Before bumping up your company’s minimum wage rate to compete with other employers, carefully calculate the added expense. If you aren’t certain you can swing it, consider other pay incentives, like performance bonuses.
Few things spark as much passion as pay levels, as all workers want to be fairly compensated for their contributions. Striking the right balance between a livable wage and a minimum wage rate companies can sustain will continue to generate debate among legislators, and present real-world challenges for business leaders.
John Allen is president and COO of G&A Partners, a Texas-based HR and administrative services company that manages HR, benefits, payroll, accounting and risk management for growing businesses.