United States: Minimum Wages, Maximum Challenges In 2016 (2017, 2018 . . .)

Although the state-level minimum wage changes in 2015 have been tame compared to the significant changes in 2014,1 employers should be aware of a number of minimum wage legislative developments on the federal, state, and local levels this year. The U.S. Department of Labor has proposed significant increases to the minimum salary that must be paid to executive, administrative, and professional employees for them to be exempt from federal minimum wage and overtime requirements. Proponents of increased minimum wages have succeeded in having more cities and counties enact local minimum wage laws and raise minimum wage rates where rates have remained unchanged for years. 

This article will discuss minimum wage changes that will occur in 2016 and subsequent years. We will briefly discuss the impact these increases can have on overtime-exempt employees. Additionally, we will take a closer look at local minimum wage developments. Finally, we will provide recommendations on how employers can effectively manage minimum wage changes on the federal, state, and local levels.

Complications in Minimum Wage Compliance

Compliance with minimum wage requirements has been complicated by California's and Washington State's restrictive interpretations of how the minimum wage must be paid. In California and Washington State, hourly-paid employees must be paid the minimum wage for each increment of work time, even if the employees' total pay, when divided by the hours worked, would exceed the minimum wage. In California, a piece rate pay plan is considered to provide compensation only for the activities which are directly related to earning the piece rate, and in Washington State a piece rate pay plan is not considered to provide compensation for rest breaks. For piece rate workers, separate compensation has been found to be due for non-productive and rest periods in California,2 and for rest periods in Washington.3

Compliance with California's minimum wage with respect to piece-rate-paid employees will become more complicated in 2016 by new Labor Code section 226.2. Section 226.2 will require piece-rate employees to be separately paid for non-productive time and for rest and recovery periods. Section 226.2 will also impose additional recordkeeping and pay stub requirements.4 The new statute also offers a defense to claims that compensation was not provided for rest and recovery periods. 

Overview of State Minimum Wage Increases5

Currently6 11 states require officials to examine and potentially adjust the minimum wage annually: Arizona; Colorado; Florida; Missouri; Montana; Nevada; New Jersey; Ohio; Oregon; South Dakota;7 and Washington.

To date, 15 state legislatures have enacted laws increasing the minimum wage in 2016: Alaska; Arkansas; California; Connecticut; District of Columbia; Hawaii; Maryland; Massachusetts; Michigan; Minnesota; Nebraska; New York;8 Rhode Island;9 Vermont; and West Virginia. Additionally, Arkansas, Connecticut, and Massachusetts have scheduled increases in 2017, and Hawaii, Maryland, Michigan, and Vermont have set increases for 2017 and 2018.

Decreased Consumer Price Index Causes Many State Minimum Wages to Not Increase 

Many state minimum wage rates are adjusted annually based on changes to the consumer price index (CPI). The CPI used by most states either decreased or the increase was insufficient to trigger a raise in 2016. However, employers should not expect a corresponding decrease in the minimum wage. Rather, 2015 rates will continue into and throughout 2016 in the following states: Arizona; Florida; Missouri; Montana; New Jersey; Ohio; Oregon; and Washington State.

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1 See Brian Dixon and Sebastian Chilco, The Future of the Minimum Wage – 2015 and Beyond, Littler Insight (Nov. 13, 2014).

2 See Richard Rahm, Julie Dunne, and Michelle Heverly, "That Can't Be Right!" California Appellate Court Rules that Piece Rate Workers Are Entitled to Separate Hourly Compensation, Littler Insight (Mar. 22, 2013); see also Bluford v. Safeway Inc., 216 Cal. App. 4th 864, 872 (2013) (“a piece-rate compensation formula that does not compensate separately for rest periods does not comply with California minimum wage law.”). Like rest periods, Labor Code section 226.7 requires that a recovery period mandated by state law be counted as hours worked.

3 See Breanne Sheetz Martell, Washington Piece-Rate Workers to Receive Separate Rest Breaks, Littler ASAP (July 23, 2015).

4 See Richard Rahm and Angela Raforth, California Governor Signs AB 1513, Severely Limiting Piece-Rate Compensation but Throwing a Liability Life Raft to Employers, Littler Insight (Oct. 12, 2015).

5 Minimum wage rates in the following 25 states are currently not scheduled to change or possibly change via annual adjustment: Alabama; Delaware; Georgia; Idaho; Illinois; Indiana; Iowa; Kansas; Kentucky; Louisiana; Maine; Mississippi; New Hampshire; New Mexico; North Carolina; North Dakota; Oklahoma; Pennsylvania; South Carolina; Tennessee; Texas; Utah; Virginia; Wisconsin; Wyoming.

6 The following states will adjust their rates annually in the future: Alaska (effective January 1, 2017); District of Columbia (effective July 1, 2017); Minnesota (effective January 1, 2018); Vermont (effective January 1, 2019); and Michigan (effective April 1, 2019).

7 2016 is the first year South Dakota’s minimum wage will be annually adjusted.

8 New York’s minimum wage rates change on December 31, 2015, which for all intents and purposes is a 2016 increase.

9 Rhode Island is the only state to enact a relevant law in 2015; other states enacted laws in previous years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Sebastian Chilco
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