Maximizing the Minimum The implications of Missouri’s new wage law

In November of last year, Missouri voters approved Proposition B, raising Missouri’s minimum wage to $6.50 per hour, by a margin of 76 percent to 24 percent.

Proposition B also stipulated that the state’s minimum wage be indexed to annual cost-of-living increases or inflation. Leading up to the election, proponents argued that the state’s lowest wage earners deserved a more livable wage. Opponents argued that increasing the minimum wage would create a less-friendly business climate in the state; increase expenses for businesses, which would ultimately be passed on to the consumer; and result in job cuts or, at least, a virtual freeze on hiring additional help such as temporary labor or part-time summer employment for youth.

The Missouri General Assembly in late January began considering legislation that would undo some provisions in the minimum wage law and establish a joint, bipartisan committee to study the impact of the annual increase in the minimum wage on Missouri’s economy.

One proposal was to exempt overtime pay requirements for firefighters, police and other government-employed safety workers.

Further complicating the equation is a push at the federal level to raise the minimum wage nationwide. A bill that already has passed the U.S. House of Representatives calls for raising the federal minimum wage from its current level of $5.15 per hour to $5.85 per hour 60 days after becoming law. One year later, the federal minimum wage would rise to $6.55. After two years, it would top out at $7.25. A similar bill is pending in the U.S. Senate but would couple the wage increases with a number of tax breaks for businesses. President Bush has said that he will sign the bill into law as long as those tax breaks remain a part of the final version of the bill winding up on his desk.

Missouri’s new minimum wage went into effect Jan. 1, and reality is beginning to set in regarding its true effects on small business. Many aspects of the new law have raised questions.

In the period from the law’s passage last November to the effective date, Jan. 1, what were some of the challenges encountered in implementing its provisions?

Cynthia Quetsch, deputy director of the Missouri Department of Labor and Industrial Relations, said her department fielded inquiries from business owners who were unclear about what the law meant for them and how it was to be applied. Quetsch said, “Small businesses were calling, saying, ‘Here’s our situation. What do we do now? How do we implement the new requirements?’” A number of them were under the misconception that they had until April 15 to implement the new minimum wage. Others had questions about hanging required posters; the law doesn’t require a poster per se—only that employers post a summary of the new wage requirements. A model summary is available at www.mominimumwage.com.

How does the indexing provision of the new law work?
On Jan. 1 of each successive year following its initial implementation, Missouri’s new minimum wage will increase or decrease by a percentage equal to the increase or decrease in the cost of living, as determined by the U.S. Department of Labor. The exact figure will be announced by the Missouri Department of Labor and Industrial Relations on Sept. 30 of each year prior to the Jan. 1 implementation. For all practical purposes, indexing the minimum wage to inflation will mean annual salary cost increases for employers who hire lower-wage workers.

How will the proposed federal increase in the minimum wage affect Missouri’s new minimum wage?
The federal proposal on the table would hike the minimum wage to $7.25 by 2009 if it does become law. Brad Jones, Missouri State Director of the National Federation of Independent Business, contends that Missouri’s minimum wage would jump to the new federal level and then the state would index annually from there. In states where workers are governed by both a state and a federal minimum wage, employers are required to pay the higher of the two. In this scenario, once the phased-in federal minimum wage exceeds Missouri’s, even with indexed increases, Missouri employers would be required to pay the higher federal rate. Missouri law will continue to require indexed increases over and above $7.25. Jones believes this will put Missouri businesses at a competitive disadvantage compared to other states that do not require indexing. Jones adds, however, if the final version of the bill that is eventually signed into law keeps those tax breaks intact, it will at least be more palatable and provide some mechanism through which businesses can recoup a portion of their increasing labor costs.

How are businesses coping with their increased labor costs?
Anecdotally, Jones reported hearing that some small businesses are being forced to raise their prices to compensate for increased expenses and that some anticipate cutting part-time and summer positions or even putting a hold on hiring altogether.

Few employers in Columbia were paying the minimum wage before the increase went into effect. A telephone survey conducted by the Columbia Missourian found that only a few restaurants paid entry-level workers less than $6 an hour, but most paid less than $6.50. A few hotels paid workers $6 an hour, but most paid $6.50 or more. Of 30 retail stores and entertainment venues, only the movie theaters paid minimum wage and a handful of retailers paid below $6 an hour.

Does Missouri’s new minimum wage law apply to all workers in the state?
Most Missouri workers do fall under the auspices of the new law, but there are exceptions. For a complete list, consult the actual language of the law.

Small businesses grossing less than $500,000 in annual revenues are not required to pay their employees the new minimum wage. A small number of businesses will fall into this category, and those that do will likely have few employees.

Workers who gain at least part of their compensation from gratuities do not have to be paid the minimum wage rate of $6.50 per hour. However, any hourly wage they do earn combined with tips must equal at least $6.50 per hour in total. If not, the employer must make up the difference.

Additional exemptions to Missouri’s new minimum wage law include handicapped employees of sheltered workshops; certain wage earners employed in domestic services, such as childcare in home or companionship for the elderly or infirmed; certain commissioned sales people; incarcerated offenders working in a correctional facility; certain workers in training; and others.
It may be important to note that the overtime provisions in the new Missouri law apply concurrently with those covered under the new wage. Specifically, they call for payment of time and one-half for hours worked beyond 40 in a given week, with minimal exceptions. Of late, this provision of the law has proven problematic for employers of one particular class of employee. The law has been interpreted to include police officers and firefighters employed by most municipalities. This appears to contradict federal law placing police and firefighters under a 28-day work period during which overtime does not kick in until after 171 hours and 212 hours, respectively. Several municipalities have now filed suit asking the court to throw out this part of the Missouri law. If this interpretation stands, however, Missouri municipalities will be faced with millions of dollars in additional salary expenses for their public servants.

Questions may persist for some time going forward as employers adjust to compliance with and the effects of Missouri’s new minimum wage law.