Federal Minimum Wage Rate Increases to $7.25 Effective Tomorrow

July 23, 2009

The federal minimum wage rate will increase effective tomorrow, July 24, 2009. The increase requires employees who are not otherwise exempt under the Fair Labor Standards Act (FLSA) to be paid $7.25 per hour, an increase from the current $6.55 per hour. This is the final step in a three-step increase that Congress created when it passed the Fair Minimum Wage Act of 2007.

In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher rate. According to the United States Department of Labor (DOL), forty-five states have their own minimum wage laws, and the following states currently have a higher minimum wage rate than the new federal rate of $7.25 per hour:

  • California
  • Colorado
  • Connecticut
  • Illinois
  • Massachusetts
  • Michigan
  • Nevada
  • New Mexico
  • Ohio
  • Oregon
  • Rhode Island
  • Vermont
  • Washington
  • District of Columbia

Additionally, a few cities have separate minimum wage rates. For instance, the current rate in San Francisco, California is $9.79 per hour, which is adjusted yearly based on increases to the regional consumer price index.

The federal minimum wage increase comes amid an ongoing recession and disagreements among economists and political commentators about what effect, if any, the hike will have on the unemployment rate. When Congress passed the Fair Minimum Wage Act in May 2007, the national unemployment rate was approximately 4.5 percent. According to the DOL’s Bureau of Labor Statistics, the national unemployment rate reached 9.5 percent in June 2009, which is the highest rate in twenty-six years. Further, the DOL reported on July 17, 2009 that twelve states and the District of Columbia have significantly higher jobless rates than 9.5 percent. Michigan had the highest rate of any state in the country, with a seasonally adjusted unemployment rate of 15.2 percent in June 2009. In addition, in a forecast released on July 15, 2009, the Federal Reserve echoed President Obama’s predictions that the national unemployment rate would rise to 10.1 percent or higher before the end of the year.

Despite these sobering statistics, Congress has not delayed the impending minimum wage increase. Thus, employers should comply with the new federal rate and check the minimum rate in the states and localities in which they do business to ensure compliance with the highest applicable rate. Employers should also ensure that they have properly displayed a copy of the currently applicable state and federal minimum wage posters that note the minimum wage increase in a conspicuous location for each of their workplace sites, even if the increase will not affect employees at a particular location.

For further information on the new minimum wage rules, other employment issues or wage and hour compliance generally, please contact the authors or any member of the McGuireWoods Labor & Employment or Employee Benefits teams.