This week, Connecticut voted in a bill to raise the minimum wage to $15/hour. The plan is to raise the current rate of $10.10/hour to $11/hour by October, and then steadily increase the rate each year by $1 every 11 months until reaching the new rate of $15/hour by 2023. This landmark bill will provide an impact for over 300,000 workers and while the goal is to improve worker compensation, the impact on businesses will be felt. Many are concerned there will be decrease in jobs for these businesses to keep costs low, adhere to payroll compliance and maintain profit margins. With little alternative, a focus on proper payroll management and payroll compliance will become key to thriving in this new world.
A New Normal for Businesses – States are Moving Towards higher Minimum Wage Rates
Connecticut’s Minimum Wage is just one of many states that have put forth legislation to drive the minimum wage rate to $15/hour. Below is an illustration of the current states that are moving to the $15/hour rate:
And here is the current minimum wage rates by state:
When you look at it, the higher rates follow in line with the overall cost of living in states that are statistically higher. Much of the impetus is to enable hourly workers the same opportunities to work an hourly rate that will enable them to maintain a cost of living that is commensurate with where they live. And, while this is a victory for the hourly worker, it can be a death knell for small businesses that are trying to maintain operations while keeping costs low, in terms of payroll management and payroll compliance.
Connecticut Minimum Wage Law will Still Provide for a Tip Credit in Restaurants
As part of the law, the impact on restaurants will provide for tip credits, which will help to offset the initial challenge. Under the law, the wage rate will effectively freeze at $6.38 for servers and $8.23 for bartenders to allow for a tip credit. In some cases, tips can be calculated as part of meeting the minimum wage standard. According to federal and most state laws, an employer is able to take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage and the state minimum wage.
So, in 2019, the employer can claim a tip credit of $3.72/hour which, combined with a server’s $6.38/hour cash wage brings the total to the state minimum wage of $10.10/hour. For now, this is frozen, so the tip credit will continue to increase as the minimum wage rates increase over time. However, any employee that doesn’t meet the minimum tip amounts will need to be made up by the employer. This is where having a payroll management solution that automates the tip credit process can be a powerful tool.
Payroll Management and Payroll Compliance Become the Best Option for the Future
Here’s the landscape as we see it. The Federal Minimum wage is currently $7.25/hour, and currently 16 states are in line with that rate, which is about 32% of the country. However, this also means that 68% have rates higher than the federal rate, and there will be 8 states that will be moving to a $15/hour minimum wage rate:
Of the 46 States that have a minimum (4 states do not), 26 states will be raising their rates, which is over half, and 8 states will be going to the $15/hour minimum. This means, that for over half the country, and businesses in the United States, rates are going up – it’s just a matter of “how high?”.
It’s time for companies to operate smarter, rather than risk losing jobs, or reducing operations. There are payroll management processes, and payroll compliance tools that will allow companies to take advantage of building more efficient workforce management, take advantage of tax credits, and reduce overtime and administrative overhead through automation. Look for payroll management solutions that will help you minimize unnecessary costs, give you visibility into how you can operate more efficiently, and keep you in compliance with your payroll, time and labor and human resource management.
A Coming Storm that CAN be Weathered, with the Right Tools for Payroll Management
While it is unclear how many other states may start to change legislation and follow Connecticut’s minimum wage lead, right now the majority of state won’t be hitting the $15/hr mark. However, 56% of the States will be raising their rates over the next few years, and in order to maintain operations and keep jobs, businesses will need to adapt to the new normal. Look to find ways to automate manual methods, whether in payroll management solutions, time and labor management solutions, or even HR Management processes. While not the only thing you can do, it is definitely a step in the right directions towards reducing administrative costs, so you can keep in line with increases in minimum wage.