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by Jen Leigh on October 1, 2018

Minimum Wage, Million-Dollar Lessons

When the federal government first instituted a nationwide minimum wage under the Fair Labor Standards Act (FLSA) in 1938, the rate for covered workers was set at $0.25 per hour. Though it rightfully sounds like a pittance now, this landmark law was incredibly controversial at the time.

What causes the most upheaval these days, however, is the fact that local and statewide minimum wage regulations often interact with the federal minimum wage to cause headaches for employers who are striving to keep up with constantly evolving regulations. Even more challenging, failure to comply with the appropriate regulations at all levels can result in fines that are alarming in their size and punitive nature.

When you're at the helm of a business, you have enough on your plate without worrying about the shifting sands of multijurisdictional minimum wage changes. What's this all about, anyway?

A New Deal for American Workers

Interestingly, the first labor regulations in the United States came in 1933 as part of an effort to get Americans out of the workforce - underage Americans, that is. Exploitation of child workers had been a longstanding and historic problem in the U.S., with millions of even preschool-age children performing hard labor for miserable wages.

This trend naturally worsened during the Great Depression, but under the New Deal, President Roosevelt enacted an agreement wherein employers would refrain from hiring youths under the age of 16, with a few exceptions. Seen as a dramatic improvement to the fabric of society that nurtured children while also better distributing employment opportunities, this agreement had the additional stipulations of a 35 to 40-hour work week and a minimum wage of $12 to $15 per week.

Over the next five years, reformers fought to break unscrupulous employers from the easy and inexpensive crutch of child labor that they'd grown to rely on over the years, while also uncovering and weeding out other deleterious practices, including payment of workers with company scrip and sweatshop practices involving women and other economic minorities.

In 1936, Roosevelt floated out the first version of the FLSA, and after navigating a panoply of obstacles, on October 24, 1938, it became law.

Today's Minimum Wage

The federal minimum wage has climbed considerably over the past eight decades from $0.25 all the way up to $7.25, where it's been set since July 24, 2009. Today's Act, administered by the Wage and Hour Division (WHD) of the Department of Labor (DoL) doesn't only establish the floor for wages for more than 135 million workers nationwide, it also sets out the regulations for overtime pay and recordkeeping, as well as the nation's child labor laws - just as in the original version.

Just as it has retained the basic structure of the original version from the 1930s, the FLSA has also kept the controversy that plagued its ancestor. Economists battle it out over whether the federal minimum wage should be dropped altogether, whether dramatic increases in the income floor should be undertaken, or whether some measure of a "living wage" should be established.

Many note that minimum wage workers would have to put in upwards of 100 hours per week to afford a modest one-bedroom apartment, using this argument to support a move up the pay scale. The latter argument, that it is simply impossible for a worker to subsist on the federal minimum wage, has led many states, counties and even municipalities to take matters into their own hands.

An Embarrassment of Regulations

As of July 1, 2018, 45 states had their own minimum wage regulations. As of June 20, 2018, 32 cities and the District of Columbia had their own minimum wage laws, as did five counties. Clearly, this makes for some rocket-scientist-worthy scenarios: For example, Chicago and Cook County, Illinois, each have their own regulations.

Currently, if an employer " … maintains a business facility in Chicago and/or is subject to one or more of the city's licensing requirements," employees making minimum wage are being compensated $12 per hour. Minimum wage employees of companies just outside the Windy City but still in Cook County are currently making $11 per hour. Both rates changed as of July 1, 2018.

Keep Up at Your Peril

Los Angeles, California, is another location with municipal sales tax rates. It's also the home of three dozen Carl's Jr. employees who became wealthy in 2017 when that company failed to heed an increase in that city's minimum wage. The company, based in Franklin, Tennessee, continued to compensate the employees at a rate of $10 or $10.25 per hour after the minimum wage rolled over to $10.50 on July 1, 2016, until December 31, 2016. The city of Los Angeles subsequently ordered Carl's Jr. to pay the employees - who had already received back pay in the amount of $5,400 - $910,010 in penalties, plus an additional $541,123 in penalties and fines.

The City of Los Angeles maintained that this error, which was spread - as noted - over three dozen employees who worked at seven different locations, was an example of "systemic failure to comply with the city's laws." Carl's Jr. officials, unsurprisingly, saw the situation somewhat differently, stating that they simply were unaware that the restaurants in question were located at Los Angeles street addresses, more than likely because the locations had P.O. boxes for mailing addresses.

Clearly, for the restaurant, this was a million-dollar (and then some) lesson, but you can learn from their mistakes. Today's cloud based payroll solutions help companies update wages for employees across their organization in mass with a single change. 

Today's best HCM solutions provide single-employee-record data management and streamlined processing. Make the investment so that you don't have to pay the price later. We look forward to helping you on this journey today.


Jen Leigh

Jen Leigh is a Senior Product Specialist with Inflection HR's Cloud Based HR and Workforce Management Solutions. Connect with Jenni and the rest of the Inflection HR Team on Twitter, Facebook, Linkedin, or Google +.