PUBLICATIONS

President Bush has signed legislation increasing the federal minimum wage from the current level of $5.15 per hour to $7.25 by 2009.

President Bush has signed legislation increasing the federal minimum wage from the current level of $5.15 per hour to $7.25 by 2009. The “Fair Minimum Wage and Tax Relief” measure is part of a larger spending bill authorizing additional funds for the war in Iraq, among other things. This is the first increase in the federal minimum wage rate since 1997.

In addition to increasing the federal minimum wage rate, the new law extends the minimum wage to American Samoa and the Commonwealth of the Northern Mariana Islands. The new law also includes certain measures designed to provide tax relief for small businesses.

New Minimum Wage Rates: Under the new law, the federal minimum wage increases to $5.85 per hour on July 24, 2007 (sixty days after enactment of the law). On July 24, 2008 (twelve months after that 60th day), the minimum wage will increase to $6.55 per hour. On July 24, 2009 (twenty-four months after that 60th day), the minimum wage will increase to $7.25 per hour.

Impact on Tipped Employees: Currently, employers who use the “tip credit” are permitted to pay tipped employees a cash wage of $2.13 per hour, under the assumption that these employees will make enough in tips to earn the required minimum wage. The new law does not change the required cash payment; however, employers should ensure that tipped employees earn enough in tips to bring their wages up to the new required minimum wage rates.

State Minimum Wage Laws: At least thirty states currently have minimum wage rates higher than the federal minimum wage. Many of these state laws provide that the state minimum wage rate applies only if it is higher than the federal minimum. Other state laws tie the state minimum wage to the federal minimum wage. Thus, the minimum wage rate in some states may be affected by the increase in the federal minimum wage.

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