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(Editor’s Note: Today’s article is brought to you by our friends at Poster Guard® Poster Compliance Service, the leading labor law poster service that gets your business up to date with all required federal, state, and local labor law postings, and then keeps it that way — for an entire year. Enjoy the article!)
Since July 2009, in the United States, the federal minimum wage has been $7.25/hour. However, there have recently been a lot of changes to the minimum wage on a state and local level. Currently, 30 states have a minimum wage higher than federal law. In addition, cities and counties in over 80 localities have adopted minimum wages above their state’s minimum wage.
Don’t expect this trend to change anytime soon. For example, in my state (Florida), the minimum wage is increasing incrementally until it reaches $15/hour in September 2026. So, changes are happening regularly.
It’s really important to understand what’s going on with minimum wage because if there’s a difference in minimum wage laws, employers are required to pay the most generous rate to non-exempt workers. Here’s a quick example to illustrate. If I’m a non-exempt employee working in Denver, Colorado. How much should I get paid per hour?
- Federal minimum wage $7.25/hour
- Colorado minimum wage $14.42/hour
- Denver minimum wage $18.29/hour
Okay – this was an easy one, the correct answer is $18.29/hour. And remember that this applies to overtime pay as well.
Honestly though, I want to believe that employers know when they’re required to pay more than federal minimum wage. But with all the changes going on, employers need to ask themselves if they have a process in place to make sure they stay current with all these minimum wage changes. Especially if the organization has employees who work remotely.
Keep in mind, if the employee relocates, their rate of pay might change. Using the non-exempt Colorado employee example above, let’s say the employee has been living in Telluride and relocates to Denver. Employers might be certain they’re paying someone more than $7.25/hour. But if the employee is making $15/hour, did the organization know they should be making $18.29/hour?
That’s why it might be valuable to conduct a minimum wage audit. Just to clarify here, we’re only focused on minimum wage. Employers might be doing compensation related audits for other reasons like verifying exempt / non-exempt status under the Fair Labor Standards Act (FLSA) or evaluating pay equity. Those are also valuable reasons to audit compensation and they might factor into this conversation. But for now, let’s just focus on minimum wage.
How to Conduct a Minimum Wage Audit
To conduct a minimum wage audit, here are three steps to consider:
- Find a proven source for minimum wage information. Our friends at Poster Guard have developed a Minimum Wage MonitorÔ Premium Service. This online tool provides employers with a color-coded map that displays minimum wage data. It also shows past and future wage rates. This could be very helpful for future planning and budgeting purposes. The tool sends email notifications whenever minimum wage laws are passed or changed so employers can start preparing for the new rates to take effect.
- Examine employee wages in relation to the law and your internal practices. Once an organization has partnered with a reliable information source, you can start conducting their wage analysis. This isn’t simply a question of “are we or aren’t we” paying more than minimum wage. Employees know what the minimum wage is and they do not have to talk to someone in the breakroom to figure out if they’re not being paid fairly (given a minimum wage increase). Oh, and I don’t want to get off-track, but if your state/location requires pay transparency in recruitment marketing, then you’ll want to ensure that you’re disclosing the correct pay rate.
- Determine if there are “pay gaps” that need to be addressed. Organizations have to remember that they’re not just evaluating new employee pay. Minimum wage changes can impact other things, like wage compression. As a quick refresher, wage compression happens when a new employee is paid nearly the same amount as another employee with longer tenure. An example would be if an employer hires a new customer service representative at $15/hour, but a customer service rep with 5 years of service is making $15.50/hour. The organization will need to find the budget, put together a wage adjustment schedule, and plan to speak with employees about getting their pay on track.
It’s possible that the results of a minimum wage audit need to be considered with other compensation related audits. Of course, if you have any questions along the way, don’t hesitate to consult with your legal counsel because as I mentioned earlier, this trend with minimum wage changes isn’t going away anytime soon.
The last thing any employer wants is to be considered “out of touch” because they don’t know what the current minimum wage is for employees. Beyond appearing to be clueless, companies can’t afford to risk the potential wage and hour or FLSA lawsuits from their employees. Minimum wage laws are changing regularly. Get reliable information so you can pay people properly.
Speaking of reliable information, our friends at Poster Guard are going to be speaking at a webinar on “Minimum Wage Rates on the Rise: Learn How to Keep Your Business Compliant” on Tuesday, June 18, 2024 at 1p Eastern. The webinar is free and eligible for professional development credits. You can register on the HR.com website.
One more thing. We spent our time today talking about minimum wage changes from the perspective of employee pay. This is a good reminder that most – but not all – of these changes require new labor law posters. Don’t forget that Poster Guard’s Poster Compliance Service keeps you in compliance by providing automatic replacements (at no additional cost) every time a mandatory change occurs.
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