The Minimum Wage in 2017: A Coast-to-Coast Compliance Challenge

Minimum-wage-related actions in 2016 will create challenges for employers starting in 2017. Although 2016 was not necessarily a record year for passage of state minimum wage laws in general, it did break ground concerning the number of tiered and/or regional minimum wage laws enacted. This year was also notable in that Iowa joined the list of states with local minimum wage laws. Moreover, unlike 2015, when consumer prices decreased and minimum wage rates stalled in various locations, 2016 has seen an increase in the consumer price index (CPI) in each jurisdiction. States and localities that review minimum wage rates based on the CPI have, therefore, increased them. Additionally, voters in four states and one city approved ballot measures increasing their minimum wage. This article discusses this year’s minimum wage events that will have an impact from 2017 on.

Overview of State Minimum Wage Increases

For 2017, eight states must examine and may increase the minimum wage: Alaska, Florida, Missouri, Montana, Nevada, New Jersey, Ohio, and South Dakota.¹ Also, to date, 12 state legislatures, along with voters in four states, have enacted laws or passed ballot measures increasing the minimum wage and/or changing the minimum cash wage and maximum tip credit for tipped employees in 2017: Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Hawaii, Maine, Maryland, Massachusetts, Michigan, New York, Oregon, Rhode Island, Vermont, and Washington State.

Additionally, numerous states have already scheduled minimum wage rate changes for future years:

• 2018: 12 state-level jurisdictions have scheduled minimum wage rate² changes (Arizona, California, Colorado, District of Columbia, Hawaii, Maine, Maryland, Michigan, New York, Oregon, Vermont, and Washington State).
• 2019: eight have changes scheduled (Arizona, California, Colorado, District of Columbia, Maine, New York (New York City Small Employer; Remainder of Downstate & Remainder of State; Fast Food Employee Outside New York City), Oregon, and Washington State).
• 2020: eight have changes scheduled (Arizona, California, Colorado, District of Columbia, Maine, New York (Remainder of Downstate & Remainder of State; Fast Food Employee Outside New York City), Oregon, and Washington State).
• 2021: four have changes scheduled (California, New York (Remainder of Downstate & Fast Food Employee Outside New York City), and Oregon).
• 2022: two have scheduled changes (California and Oregon).
• 2023: California has scheduled a change for employers with 25 or fewer employees.

Tiered or Regional Minimum Wages: The New Normal?

Until recently, most states used one minimum wage rate statewide. Minnesota and Montana were exceptions with different rates based on employer revenue. Minnesota also had a separate industry-based rate. This began to change in September 2015 when the New York State Department of Labor released its Fast Food Wage Order, setting different minimum wage rates for covered fast food workers inside and outside New York City beginning December 31, 2015.³ In 2016, a surge occurred. In March 2016, Oregon created a three-tier system, setting “general,” “urban,” and “nonurban” rates.⁴ On the same day in April 2016, California⁵ created a two-tier system (based on number of employees), and New York⁶ created four new minimum wage rates: two in New York City; one in Nassau, Suffolk, and Westchester Counties; and another in the remainder of the state. Although it is unlikely the trend will sweep the nation, it does set a precedent, which could be followed elsewhere. Moreover, instituting a geographic region-based minimum wage system could prove a useful tool for state legislators trying to avoid a hodgepodge of local measures while satisfying regional concerns about wage stagnation.

Local Minimum Wage Laws

Local minimum wage laws have increased exponentially in recent years. In 2013, four new laws were enacted.⁷ 2014 saw nine enacted laws.⁸ Enactment of local laws hit fever pitch in 2015, when 14 local laws were enacted.⁹ To date, 2016 has tied the record with 14 new laws, mostly in California or Iowa:

• Arizona: Flagstaff.
• California: Cupertino, Los Altos, Malibu, Pasadena, San Diego, San Leandro, San Mateo, and Santa Monica.¹⁰
• Illinois: Cook County.¹¹
• Iowa: The city of Tiffin, Linn County, Polk County, and Wapello County.¹²

Interestingly, various localities voted against exploring or instituting a local minimum wage. For example, the West Hollywood, California City Council elected not to explore further a minimum wage ordinance, and the Long Beach, California City Council dropped its proposed ordinance. The Board of Supervisors of Woodbury County, Iowa voted against creating an advisory committee to create a county minimum wage.

Preemption v. Populism

At least 23 states have enacted laws expressly banning local governments from enacting minimum wage laws. For example, in 2016, Idaho’s minimum wage statute was amended to prohibit local minimum wage laws and the North Carolina minimum wage statutory scheme was amended to provide that state law generally superseded and preempted any local measure regulating compensation, e.g., wage levels, wage payment, etc. Before these new preemption laws, neither Idaho nor North Carolina had a local minimum wage law that covered private employers.

However, cities and citizens have begun to push back. For example, Miami Beach, Florida enacted a local minimum wage law that is set to take effect January 1, 2018, even though a state law arguably preempts local minimum wages. The city contends the state constitution – which implemented the state minimum wage – permits a local minimum wage. Also, a legal challenge has been filed concerning Arizona’s preemption law, the result of which will impact the recently-passed local minimum wage ballot measure in Flagstaff.

Various other challenges have made, or are making their way, through the courts. On October 6, 2016, the Missouri Supreme Court heard oral arguments involving the City of St. Louis’s minimum wage ordinance and a Missouri preemption law enacted in response to – and only days before – the local law. At the other end of the litigation spectrum, litigants in a case pitting the Birmingham, Alabama minimum wage ordinance against the state's preemption law – like with Missouri, enacted as a direct response to the Birmingham law – are battling in federal court about whether the case will proceed past the dismissal stage. On October 20, 2016, the Kentucky Supreme Court ruled that Louisville-Jefferson County’s minimum wage conflicted with the state minimum wage law and was invalid. The conclusion reached should apply equally to Lexington-Fayette County’s minimum wage law, meaning there are no longer any generally-applicable local minimum wage laws impacting private employers in the Bluegrass State.

What Happened at the Polls?¹³

Voters approved state minimum wage increases in Arizona,¹⁴ Colorado, Maine, and Washington State. All initiatives set multi-year increases from 2017 through 2020, with annual adjustments in 2021 and subsequent years. Moreover, for all intents and purposes, Maine set the minimum cash wage tipped employees must be paid through 2024: in 2018 and each subsequent year, the wage for tipped employees will increase by $1 per hour until it equals the generally-applicable minimum wage rate, at which time the tip credit will be eliminated.

Although Arizona, Colorado, and Maine all set a $12 minimum wage for 2020, these states will take different approaches in reaching that number. Arizona will use two 50-cent increases per year followed by a $1 increase ($10, $10.50, $11, $12). Colorado will use a 90-cent per year increase structure ($9.30; $10.20; $11.10; $12). Maine will increase its minimum wage $1 per year ($9; $10; $11; $12). Of the four states, Washington State set the highest 2020 minimum rate using two 50-cent increases followed by a $1.50 increase ($11; $11.50; $12; $13.50).

Flagstaff, Arizona was the only local minimum wage ballot measure at the general election. As noted, whether the ordinance is valid remains to be seen. If the courts strike down the state preemption law, Flagstaff will be on its way to at least a $15-per-hour minimum wage by 2021. Initially, the Flagstaff law uses a July 1 start date (in 2017), but eventually aligns with the state’s January 1 adjustment date in 2018 and future years. The law sets the minimum wage at the greater of the preset local rate or the state minimum wage plus $2. Because voters approved increases to the state minimum wage in coming years, the applicable rate will be the state rate plus $2 ($12.50; $13; $14). Absent a significant change in the CPI between 2019 and 2020, the local rate in 2021 will be $15. Also, like Maine's law, the Flagstaff law gradually reduces the tip credit until it is eliminated in 2026.

However, not all minimum-wage-related ballot measures passed. South Dakotans voted down a ballot measure that would have allowed employers to pay non-tipped employees under age 18 less than the state minimum wage. In Berkeley, California, two measures failed to pass, but the result was expected. Shortly before the election, the city council passed a measure that amended the existing minimum wage. Its goal was to compromise on changes, as both the council and wage advocates put competing measures on the ballot. After the council adopted the changes, both sides advocated for citizens to vote down both measures.

Suggestions for Employers

In light of the various changes, employers may consider any or all of the following:

• Implementing an effective system of monitoring minimum wage increases at all levels.
• Ensuring non-exempt employees – tipped and non-tipped – are paid at least the minimum wage (and that the minimum wage is paid separately for each hour of work in jurisdictions that require such strict compliance).
• If operating in a state that has a 7(i) exemption (the so-called “retail sales exemption”) or an exempt employee salary basis component that uses the state minimum wage, ensure wage requirements are satisfied.
• Confirming, in applicable states, that overtime-exempt white collar employees are paid at least the minimum wage.
• Updating minimum wage posters.
• Informing employees about their new rate(s) before the employees perform work under the new rates.
• Training HR, payroll, and managerial employees on increases, posting, and notice requirements, and how to respond to employee inquiries concerning wage rate changes.
• For New York employers in particular, ensuring that processes are in place to track the accurate amount of tips received by tipped employees.

State and/or Local Minimum Wage Increases in 2017

Below are the minimum wage rate changes for non-exempt employees in 2017. In certain jurisdictions, tipped employees may be paid differently if all applicable requirements are met. Essentially, an employer can count tips a covered employee receives for purposes of paying that employee the hourly minimum wage. Depending on the jurisdiction, either a minimum cash wage is set and the maximum tip credit is the difference between the minimum wage and minimum cash wage, or vice versa. In these jurisdictions, if an employee’s cash wage plus tips received equal the minimum wage, an employer’s minimum wage obligation has been satisfied. However, if the cash wage plus tips does not equal the minimum wage, then an employer must pay the employee the difference.

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

District of Columbia

Florida

Hawaii

Illinois

Iowa

Maryland

Maine

Massachusetts

Michigan

Missouri

Montana

Nevada

New Mexico

New Jersey

New York²⁰
Generally

Tips

The New York State labor department has proposed amending its minimum wage orders to account for all the new types of minimum wage rates that apply throughout the state. The below information is limited to what the numbers will be if the proposal is adopted.

Generally: If an employee’s weekly tip average is less than the Low amount, a tip credit cannot be claimed. If an employee’s weekly tip average is between the Low and High amounts, the tip credit cannot exceed the Low amount. If an employee’s weekly tip average equals or exceeds the High amount, the tip credit cannot exceed the High amount.

Hospitality Industry (Service Employee): A service employee must receive a wage of at least the hourly Cash Wage (CW), and a tip credit cannot exceed the hourly tip credit rate (TC), provided an employee’s weekly tip average at least the hourly Tip Threshold (TT) and the total of tips received plus wages equals or exceeds the basic minimum hourly rate (TT(R) is the tip threshold for resort hotel service employees).

Hospitality Industry (Food Service Worker): A food service worker must receive a wage of at least the hourly Cash Wage (CW), and a tip credit cannot exceed the below-specified hourly rate (TC) provided the total of tips received plus the wages equals or exceeds the hourly Total rate (MW). A tip credit is not permitted for fast food employees. 

Ohio

Oregon

Rhode Island

South Dakota

Vermont

Washington State