As expected earlier this year, when Democrats regained control of the House of Representatives, on Thursday the House voted to gradually raise the federal minimum wage to $15 an hour by 2025. The federal minimum wage has remained stagnant at $7.25 an hour for a decade. Predictably, the measure passed along party lines, 231-199, with only three Republicans voting in favor, and six Democrats opposing. Republicans and Democrats from moderate districts expressed concerns about the financial burden on small businesses, particularly in locations with a lower cost of living. The vote is largely symbolic, given the unlikelihood of passage in the Republican-controlled Senate, let alone approval by Donald Trump. But even if the measure does not become law this year or next, the House vote is a harbinger of things to come.
A person earning federal minimum wage, working 40 hours a week, every week of the year, would earn just over $15,000 annually before taxes. According to a recent analysis by the nonpartisan Congressional Budget Office, raising the minimum wage to $15 by 2025 will lift 1.3 million Americans out of poverty and put more money in the pockets of up to 27 million workers.
The push to increase the federal minimum wage comes on the heels of increases already implemented by many states, localities, and private employers. The Fight for $15 Movement was born in New York City in 2012, and spread, with more than half a dozen states having passed legislation to gradually raise wages to $15. In addition, some cities, including New York, Seattle, and San Francisco, have gotten ahead of their states’ minimums by raising the minimum wage for at least some workers within their borders to $15. According to the Department of Labor, 29 states now have minimum wages floors higher than the federal rate. Many large companies have followed suit. Disney World recently agreed to raise its minimum wage to $15 by 2021, and corporations including Wells Fargo, Amazon, and Target have also pledged to raise base wages for all employees to $15, regardless of where they work.
The collage of inconsistent minimum wage laws, varying not only by location, but also by the number of employees, poses risk for employers. For example, assume a Westchester County-based employer has minimum-wage earning workers who perform services there and in New York City. The minimum wage in Westchester for employers with 11 or more employees is currently $13 per hour, but it is $15 in New York City. Thus, the employer is obligated to either expend considerable time and effort to track the location of each hour worked in order to determine the appropriate minimum wage, or risk a lawsuit for underpayment. In addition, the pay rate for any overtime hours worked must be calculated based on the hourly rate applicable where the overtime hours were performed. Many employers may decide that it is simply easier and less risky to pay $15 for all hours and $22.50 for all overtime.
Despite the obvious financial burden on small businesses, the tight labor market and national momentum means that many employers will feel compelled to pay at least $15 per hour, even if the law does not require them to do so. So while a federal $15 minimum wage may still be years away, the probability is that most employers will soon find themselves paying $15 anyway, no matter where they do business.
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