By Lee Allphin, Employer Advantage Founder and Chairman of the Board
As part of Employer Advantage’s comprehensive suite of HR management and outsourcing services, we automatically handle payroll tax and wage rate changes for our many clients around the country. Please contact us if you would like assistance with any of your Employee Administration and Compliance responsibilities: Info@EmployerAdvantage.com | 877.476.9520
Even though many businesses are struggling to remain open during the coronavirus pandemic, they are still legally obligated to adhere to planned minimum wage increases for 2021, which are now in play for slightly more than half of states across the country.
While most large companies plan for payroll tax and wage increases, many smaller businesses may fall behind or may not be thinking about all the tax and wage changes they needed to have in place before the first payroll of the year.
WHAT HAPPENS WHEN EMPLOYERS PAY LESS THAN MINIMUM WAGE?
Paying less than minimum wage is a violation of the Fair Labor Standards Act (FLSA). There are certain exceptions: tipped employees, student learners, apprentices, workers with disabilities and employees under age 20 for their first 90 days. If you’re reported for paying your employees that are subject to the law, less than federal or state minimum wage (whichever is greater), you will be required to pay back pay. In many cases, you may be liable for both the shortfall as well as liquidated damages – which can mean double the amount. If an employee reports an employer paying less than minimum wage, a number of things will happen:
- The Wage and Hour Division of the Department of Labor can conduct an investigation of your alleged FLSA violations. They will look through your records of payment and see if you have been paying your employees the correct amount. If the Department of Labor determines that you have not been in compliance with minimum wage laws, there are many different ways the back wages can be recovered.
- The Wage and Hour Division can supervise the payment of those back wages, or the Secretary of Labor might bring suit for back wages as well as liquidated damages. Or, an individual employee might file a private lawsuit for their damages and back pay (which will also result in court costs and attorney fees.)
- Your employees can file a private suit for up to two previous years of back pay. Or, if it is a case of a willful violation, the statute of limitations increases to three years.
- In some situations, you might also need to pay a fine if you pay less than minimum wage.
- The government often penalizes company owners and officers with criminal prosecution and fines up to $10,000.
- A president of a Minnesota company was sentenced to two years in jail with a potential fine of $3.3 million due to intentionally underpaying employees their overtime, union pension and benefit contributions.
- In another situation, the owners of a security company in Illinois were fined $200,000 for underpaying employees. This included back pay, overtime violations and provisions for record keeping.
These are just a few of the many examples of business owners who have been required to pay large penalties for wage violations. Even accidentally paying less than minimum wage can be a very expensive mistake.
FEDERAL MINIMUM WAGE VS. STATE
A USA Facts analysis of Labor Department data estimates 1.7 million workers – roughly 2% of all hourly non-self-employed workers – earned wages at or below the federal minimum of $7.25 per hour in 2018. The federal minimum wage rate has remained at $7.25 an hour since July of 2009.
With a flurry of recent legislative actions states have made state by state changes. More than half the states’ legislatures have lifted minimum base pay above that federal standard.
Proponents of a higher minimum wage have cited cost-of-living increases since 2009, when the federal government boosted its benchmark to $7.25. Activists have focused on a $15 per hour minimum wage as an acceptable standard.
Opponents, however, contend that a considerably higher minimum wage would strain small businesses and employers who do not collect enough revenues to offset more substantial wage requirements.
With the incoming Biden administration expressing interest in increasing the federal minimum wage, a higher federal minimum wage is very likely, and will impact the remaining states that have been using the federal standards for minimum pay.
To help employers remain in compliance with current wage increases, here is a state-by-state rundown of changes for 2021:
- Alaska: $10.34 per hour, up 15 cents from $10.19 per hour. School bus drivers are to be paid two times the minimum wage.
- Arizona: $12.15 per hour, up from $12.00 per hour. In addition, employees are entitled to paid sick leave, at the rate of one hour of paid sick time for every 30 hours worked, but with limits based on the size of the employer.
- Arkansas: $11.00, up from $10.00 per hour.
- California: $14.00 per hour, for businesses with 26 or more employees; $13.00 for smaller employers, $15.00 by 2022 for businesses with 26 or more employees and by 2023 for smaller employers. Some cities have new minimum wages as well.
- Colorado: $12.32 per hour, up from $12.00 per hour.
- Connecticut: $12 per hour, scheduled to increase to $13.00 on August 1, 2021. The minimum wage is scheduled to reach $15.00 per hour in 2023.
- Florida: $8.65 per hour, up 9 cents. Tipped employees must be paid $5.63 per hour. They will increase the minimum wage to $10.00 on September 30, 2021 and to $15.00 by 2026.
- Illinois: $11.00 per hour, up from $10.00, to reach $15.00 in 2025.
- Maine: $12.15 per hour, up from $12.00.
- Maryland: $11.75 for large employers and $11.60 for small employers, increasing at different increments to reach $15.00 in 2025 for large employers and in 2026 for small employers.
- Massachusetts: $13.50 per hour, an increase of 75 cents. Scheduled to reach $15.00 by 2023.
- Michigan: $9.87, up from $9.65 per hour.
- Minnesota: $10.08 per hour (up from $10.00) for employees of large employers. Small employers must pay employees a minimum wage of at least $8.21 per hour (up from $8.15).
- Missouri: $10.30, up from $9.45 per hour, to increase by 85 cents per hour each year until 2023, when the state minimum wage will reach $12.00 per hour.
- Montana: $8.75 per hour, up 10 cents, adjusted annually based on inflation.
- Nevada: $9.00 per hour for employees who do not receive health benefits, to increase to $9.75 on July 1, 2021. $8.00 per hour for employees who do receive health benefits applies, to increase to $8.75 on July 1, 2020.
- New Jersey: $12.00 per hour for most employees, up from $11.00 per hour. Scheduled to reach $15.00 for most employees in 2024.
- New Mexico: $10.50 per hour, up from $9.00 to increase to $12.00 by 2023.
- New York: Tiered/Rates vary by region—$15.00 per hour in New York City; $14.00 per hour in Nassau, Suffolk and Westchester counties (then $1.00 each year after, reaching $15.00 on December 31, 2021); $12.50 per hour in remainder of the state.
- Ohio: $8.80 per hour, up 10 cents from $8.70 per hour. Wage rates are adjusted annually based on inflation. The minimum wage rate applies to employees of businesses with annual gross receipts of $323,000 per year (changed from $319,000 in 2020). For employees at smaller companies and for 14- and 15-year-olds, the state minimum wage is $7.25 per hour, which is tied to the federal rate.
- Oregon: Tiered/Rates vary by region—Metro Portland area at $13.25 per hour ($14.00 effective July 1, 2021), in rural (non-Urban) areas at $11.50 per hour ($12.00 effective July 1, 2021), and a minimum wage of $12.00 per hour ($12.75 effective July 1, 2021) in the rest of the state.
- Pennsylvania: $7.25 per hour, but $13.50 for employees under Governor’s jurisdiction, up from $13.00.
- South Dakota: $9.45 per hour, up 15 cents from $9.30 per hour.
- Vermont: $11.75 per hour. This is a 79-cent scheduled increase over the $10.96 per hour 2020 rate.
- Washington: $13.69 per hour, for employees who have reached the age of 18. Workers under 16 years old can be paid 85% of the adult minimum wage, or $11.64 per hour, in 2021.
- Georgia and Wyoming: $5.15 per hour These two states have minimum wage below the minimum standard.
- Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. These five Southern states have not established state-level minimum wage policies, effectively defaulting to the national federal minimum of $7.25. Employers in these states must adhere to that federal benchmark and do not have the freedom to pay employees whatever they want.
- The rest of the states not listed remain the same for now.
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