How is the new Federal Minimum Wage affecting Small Businesses?

The Federal minimum wage rose from $6.55 to $7.25 an hour on Friday, bringing with it controversy about whether the increase is good or bad for the economy.

The raise, which affects about 4 million workers nationally, is the third and final increase mandated by Congress in 2007. For a full-time minimum wage earner, the bump up means $28 a week more. But for small-business owners struggling to make a profit, the mandated increase may present problems.

The U. S. Department of Labor says the change will mean a favorable raise for minimum wage workers covered by the Fair Labor Standards Act in 30 states where state minimums were lower than the federal rate. In New York alone, the minimum wage rose 10 cents an hour with the federal increase. The state’s previous minimum was only $7.15.

Generally, the federal law covers workers at companies with sales of at least $500,000 a year and those that engage in interstate commerce, which includes accepting national credit cards, so most all workers will be covered by the federal increase.

A study by economists at the Federal Reserve Bank of Chicago estimated that the minimum wage increases in July 2007 and July 2008 generated $4.9 billion in consumer spending, and that this year’s increase would boost another $5.5 billion into the economy.

Small Business owners and a few economists say the required increase is coming at the worst possible time, and that this is due to Congress not foreseeing the current recession when they implemented the three-step program three years ago.

In a report released by the Families and Work Institute said the recession caused revenues to fall for two-thirds of employers, and 90 percent of those with lower revenues have had to cut their labor costs by reducing workforce.

Those against the minimum wage hike say that higher rate will cause employers to raise the quality bar for employees, therefore shutting out the least-skilled workers, the very ones the law was originally designed to help.

In actuality, only a small percentage of U. S. workers earn minimum wage because market forces have pushed average wages higher. Indeed, it’s difficult in many cities to find minimum wage earners, even among food service workers.

In addition, the National Small Business Association reported this week that the number of small businesses hiring new employees in the past 12 months dropped from 18 percent in December to 9 percent in July, and about two-thirds reported decreases in sales and profits.

How does the new Federal Minimum Wage Rates affect your Small Business? And how do you see that affecting your business in the future?

About the Author: Robert Peek