President Bush signed a bill on May 25, 2007 that increases the federal minimum wage by $2.10 over two years in three increments of seventy cents each.  The first increase, which takes effect sixty days after enactment (July 24, 2007), raises the federal minimum wage from $5.15 to $5.85 per hour.  On subsequent anniversaries of the first increase, minimum wage will rise to $6.55 and $7.25 per hour, respectively.  North Carolina’s minimum wage is currently $6.15 per hour.  Therefore, North Carolina employers must continue to pay the North Carolina rate until the federal minimum wage becomes higher in the summer of 2008.

Employers should be aware of three important ramifications of this new law:

1. Required Postings – New postings that reflect the new federal minimum wage will be required even if the state minimum wage is greater.

2. State Law Increases – Some state minimum wage provisions, such as those in Maine and Massachusetts, contain automatic increases that are triggered once the federal minimum wage equals or exceeds the state’s minimum wage.

3. FICA Tip Credit – In a move to help small businesses offset the costs of the minimum wage hike, the tax portion of the bill allows employers to receive full tip credit despite the increase.  Even though the minimum wage will increase, the amount of the tip credit will not be reduced.  The tip credit will be based on a minimum wage of $5.15 per hour rather than the new rates as they continue to rise over the next two years.  The provision applies to tips received for services performed after December 21, 2006.

For more information on this topic or other employment law related issues, please contact Andy Petesch at 919.783.1078 or apetesch@poynerspruill.com, or Susie Gibbons at sgibbons@poynerspruill.com or 919.783.2813.