Federal minimum wage jumps to $5.85 per hour on July 24

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Congress voted on May 24 to increase the federal minimum wage from the current $5.15 per hour to $7.25 per hour. President Bush signed the measure—which was attached to an Iraq War funding bill—the following day.

The wage increase will be done in three phases of 70-cents per hour. The first increase will result in a $5.85 per hour rate 60 days after the president signs the measure, which is July 24. The other 70-cent increases will follow a year apart. Specifically, that means the federal minimum will rise to:

  • $5.85 per hour on July 24, 2007
  • $6.55 per hour on July 24, 2008
  • $7.25 per hour on July 24, 2009

Passage of this increase is the first boost to the federal minimum wage since 1997. Since that time, several states have taken the initiative to boost their own minimum-wage levels. More than 30 states have established minimum wages above the $5.15 an hour level. Some of those states have indexed their minimum wage to inflation, which the new federal law does not do.

Democratic leaders tied the wage hike to the Iraq bill after efforts to pass a stand-alone wage measure stalled. Included in the bill are $4.8 billion in tax breaks aimed at easing the pain for small businesses that will have to pay the higher wage. Those provisions extend or revive several popular tax breaks, such as the work opportunity tax credit and incentives for business investments.     

According to the Society for Human Resource Management, several pension and retirement-related provisions were attached to the supplemental spending bill, including those to increase funding to the Pension Benefit Guaranty Corp. Many of the pension-related amendments were technical corrections to the Pension Protection Act of 2006. One provision would change the dates that businesses could elect or be considered to be part of a multi-employer pension plan, while another altered the wording on how excess pension assets could be transferred to retiree health accounts.

This isn't the end to minimum wage hikes for the year. Some states are still considering increasing their minimum wage levels well above the new federal standards. For a roundup of current minimum wage legislation in the states, see the National Conference of State Legislatures site.

Employees will be more alert, so you should be, too. The increase in wage-related lawsuits shows that employees are already aware of their wage-and-hour rights. This new law will only increase that sensitivity. As a Legal Alert from the Fisher & Phillips law firm notes, "since employees will likely be more alert to pay-related concerns in response to heavy minimum-wage publicity both now and as increases phase in, it is more important than ever that employers ensure their compliance with the pertinent laws."

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