Category Archives: Wage

Small Businesses and the Minimum Wage

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In 1938, the Fair Labor Standards Act established a federal minimum wage that all private sector employers have to pay to their nonexempt employees. The existing federal minimum wage of $7.25 an hour has been in place since July 2009 and tallies to just $15,080 a year, before taxes, for a full-time position. A family of three living off of minimum wage is well below the poverty level. States are allowed to have their own minimum wage standards that may be equal to or more than the federal rate. Kentucky, Tennessee, Mississippi, Alabama, Louisiana and South Carolina have not adopted a state minimum wage, so the federal minimum wage is applied.

Intended to reduce poverty and share economic growth across workforce levels, the minimum wage loses value every year due to inflation. The first wage was $0.25, which, adjusted for inflation, would be $4.19 today. If the federal minimum wage kept up with inflation it would actually be $10.75 an hour, and if had kept pace with workers’ productivity, the inflation-adjusted minimum wage would be $18.67. Currently, 29 states have minimum wages above the federal rate, with the highest being $10.00 in California and Massachusetts.

Small BusinessHistoric increases became law in early March when the governor of Oregon signed legislation for a regional tiered approach, increasing the current $9.25 statewide to $14.50 in metro Portland, $13.50 in smaller cities, and $12.50 in rural communities by 2022. The minimum wages in these areas will rise by cost of inflation each year, ensuring that wages keep up with cost of living.

With small businesses making up over 70 percent of all U.S. businesses, and wages comprising the largest portion of operating costs, the amount of the minimum wage greatly impacts small businesses. Some argue that in order to deal with a higher minimum wage, small businesses have to reduce their number of employees, reduce employee hours, reduce employee benefits, put hiring freezes into place, sacrifice expansion plans or upgrades, or pass the cost on by raising prices. Others claim that raising the wage increases worker productivity, provides workers with more money to put back into the economy, allows people to support their families without government assistance, improves employee morale and loyalty, and attracts talented workers.

A 2015 survey by The Wall Street Journal and Vistage International found an even split in small business opinion of raising the minimum wage. Although 75 percent of the 728 small firms that were assessed did not employ minimum-wage workers, 49 percent thought the current wage should be raised, while 49 percent did not. According to the survey, some business owners intended to offer wage increases due to a tightening labor market and stiff competition for workers with large corporations. Of the 180 business owners who employed people making minimum wage, 142 said they would offer a $1 raise within one year.

The Raise the Wage Act was introduced to Congress in April 2015, seeking to increase the minimum wage in increments to $12 by 2020. One poll conducted for Small Business Majority found that 60 percent of small businesses supported gradually raising the federal minimum wage to $12 per hour by 2020 and adjusting it annually to keep pace with the cost of living. This support came from small business owners across a range of industries and political affiliations. Of the 50 percent of the respondents that compensated their lowest paid employee from the current federal minimum wage up to $12 an hour, nearly six in ten supported the increase.

According to the Economic Policy Institute, the average person who benefits from a higher minimum wage is 36 years old and earns more than half of their family’s total income. Slightly more than half are women working full-time, and 28 percent have children. That’s a far cry from the teenager with the after-school job that many people imagine as the type of individual who earns a minimum wage. While the reality of living on a minimum-wage income has become a financial hardship for many, business interests must be taken into consideration. The delicate balancing act of how high is high enough continues.

About the Author: Thomas Bunch Sr. has been a practicing attorney in Lexington, KY for more than 50 years. Mr. Bunch is a well-respected business bankruptcy lawyer, specializing in Chapter 7 bankruptcy as well as the seemingly never-ending reorganizations in chapter 11 bankruptcy code. Mr. Bunch continues to accept cases to this day and currently practices law at Bunch & Brock Attorneys At Law