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Are You Prepared for a Minimum Wage Increase?


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New administration usually means new national policies and changes that may impact businesses in the United States. One topic that has been making recent headlines is President Biden’s push for a higher minimum wage. The increase is a component of Biden’s American Rescue Plan, with the proposed amount set at $15 per hour, which is more than double the current federal minimum wage of $7.25 per hour. Though the bill’s provisions would cover most low-wage workers, it would not cover the self-employed and certain seasonal workers. In a Feb. 11 news conference, House Speaker Nancy Pelosi stated that this increase would mean twenty-seven million workers would be getting a raise.

Of course, states and cities can opt to set minimum wage limits in their jurisdictions, as long as they are at or above the federal minimum. As of January 1st, 2021, twenty-nine states, plus Washington, D.C., Guam, and the U.S. Virgin Islands have minimum wage rates which are higher than the federal rate. Washington state leads the way with a statewide minimum wage of $13.69 per hour, and as high as $16.69 in Seattle. Washington, D.C. has a minimum rate of $15. Employers in these states my find the increases easier to deal with, or the states may already have plans in place to increase wages to $15 or higher.

For others, instituting such a drastic increase could be catastrophic, especially for many businesses that are operating on already thin margins. To mitigate this issue, the proposed plan is a tiered approach with gradual increases each year to reach $15 per hour by 2025. This gradual increase would help employers keep up with the increases and plan accordingly. Although in theory, the plan is a benefit to low-income workers, this could lead to potential job losses (the Congressional Budget Office estimates the reduction in employment to be as high as 1.4 million workers) and higher prices for goods and services. On the flip side, the CBO also mentions that a $15 minimum wage would reduce the number of people in poverty by 900,000.

President Biden says, “No one in America should work 40 hours a week making below the poverty line. Fifteen dollars gets people above the poverty line. We have so many millions of people working 40 hours a week — working — and some with two jobs, and they’re still below the poverty line.”

 

While a $15 minimum wage may not be something that becomes instituted overnight, the current minimum wage of $7.25 has remained unchanged since 2009, and the new administration will likely continue to push for higher minimum wages at a national level, and state or federally mandated wage increases might also come with complicated rules that can be difficult for business owners to decipher. Organizations might find it helpful to be proactive by assessing their minimum wage levels and the effects an increase would have, and how to deal with issues such as compression. Not being adequately prepared can prove disastrous and have negative impacts on the business.

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