How Raising the Minimum Wage Could Affect Small Businesses

Raising the federal minimum wage may help the country's lowest-paid workers, but this action may result in far-reaching effects for both businesses and consumers. Deciding when and how much to increase the federal minimum wage has become a hotly debated issue over the last several years as many conflicting views come into play. When wages increase, some experts believe the economy could grow, thanks to additional consumer spending. At the same time, other experts say higher labor costs may also cause businesses to decrease executive pay levels, limit hiring or raise the prices of their goods and services.

What is the Minimum Wage in the United States?

The current federal minimum wage is $7.25 per hour for covered nonexempt employees. The amount increased to this national standard by Congress as of 2009. Although the federal minimum wage is set by the federal government, many states (and local jurisdictions) also have minimum wage laws. In cases where an employee is covered under multiple minimum wage laws, the employee is entitled to the higher of the applicable rates.

Effective Dec. 31, 2021 (New York jurisdictions) and Jan. 1, 2022 (all others, unless noted), covered employees in the following local jurisdictions will be subject to a new minimum wage rate.

What Are State Minimum Wages Rates in 2022?

Note: States not listed either do not have a minimum wage or the state minimum wage is the same as the current federal minimum wage rate of $7.25. Alabama, Louisiana, Mississippi, South Carolina, and Tennessee have no state minimum wage requirement, so employers in that state subject to the Fair Labor Standards Act must pay the federal minimum of $7.25 per hour. Georgia and Wyoming have state minimum wages of $5.15, but employers subject to FLSA must pay federal minimum of $7.25.

^-Was $13 until July 1, 2022

^^-Will increase to $11 on Sept. 30, 2022

¹-Listed rate is for employers in Arkansas with 26 or more employees.

²-Listed rate is for employers in California with 26 or more employees. Employers in California with 25 or fewer employees have a minimum wage of $14 per hour.

³-Listed rate is for employers in Maine with 14 or fewer employees. Employers in Maine with 15 or more employees have a minimum wage of $12.50 per hour.

⁴-Listed rate is for employers in Maryland with 15 or more employees. Employers in Maryland with 14 or fewer employees have a minimum wage of $12.20 per hour.

⁵-Listed rate is for large employers (annual gross revenues of at least $500,000). Small employers must follow a minimum wage of $8.42 per hour in 2022.

⁶-For employers who offer health insurance. If an employer does not offer health insurance, the minimum wage is $9.75.

⁷-The $13 applies to N.J. employers who are non-seasonal with six (6) or more employees. Seasonal employees and for those working for businesses with five (5) or fewer employees must receive $11.90 per hour.

⁸-Santa Fe County increased its minimum wage to $12.95 per hour March 1, 2022.

⁹-Listed rate is for most employers in New York state. Some areas in the state (New York City) have a higher, local minimum wage ordinance that takes precedence.

¹⁰-This rate is the standard minimum wage for employers with annual gross receipts of $324,000 per year. Otherwise, the federal minimum wage of $7.25 applies.

¹¹-Listed rate is the standard minimum wage. Portland Metro region has its own local minimum wage ordinance that takes precedence.

What employers should know

Any change in minimum wage might create additional compliance concerns for employers, especially for employers in states with multi-tiered minimum rates where employees might have different payroll tax requirements.

If you have a business in a state where the minimum wage did not change this year and the rate mirrors the federal minimum wage, you need to stay informed on any changes at the federal level that will affect the requirements of your state, as well as any potential legislation that affects your state specifically.

Conclusion

The federal minimum wage is one tool the government uses to assist those in low-paying jobs and help them stay above the poverty level. Businesses should keep abreast of and be prepared to adapt to a federal minimum wage increase should legislation be passed in the near future. Employers must also comply with their obligations related to minimum wage under existing state and local laws.