On May 25, 2007, President Bush signed legislation increasing the federal minimum wage for the first time since 1997. The increase was tacked on to an unrelated “war supplemental” appropriations bill and approved by the U.S. House and Senate by large margins.
Title VIII, Subtitle A, of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007, is the Fair Minimum Wage Act of 2007, which increases the minimum wage. Title VIII, Subtitle B, is the Small Business and Work Opportunity Tax Act of 2007, an accompanying package of business tax incentives.
Fair Minimum Wage Act
The Fair Minimum Wage Act of 2007 increases the federal hourly minimum wage rate to:
• $5.85, effective 60 days after the date of enactment (i.e., July 24, 2007);
• $6.55, effective 12 months after that 60th day (i.e., July 24, 2008); and
• $7.25, effective 24 months after that 60th day (i.e., July 24, 2009).
Small Business and Work Opportunity Tax Act
The Small Business and Work Opportunity Tax Act of 2007 contains several provisions of interest to payroll professionals.
• FICA tax credit on employee tips. The Act freezes the minimum wage at $5.15 per hour for the sole purpose of determining the employer’s business tax credit for the employer’s share of social security and Medicare (FICA) taxes paid on employee tips above the minimum wage (IRC §45B).
• Work Opportunity Tax Credit. The Act extends the Work Opportunity Tax Credit for qualified individuals who begin work for an employer after December 31, 2007, and before September 1, 2011.
• State minimum wage rates. The minimum wage rate in several states is tied to the federal rate in various ways. Five states – Alabama, Louisiana, Mississippi, South Carolina, and Tennessee – have no minimum wage law. One state – Kansas – has a minimum wage rate lower than the federal rate. And 15 states – Georgia, Idaho, Indiana, Kentucky, Nebraska, New Hampshire, New Mexico, North Dakota, Oklahoma, Puerto Rico, South Dakota, Texas, Utah, Virginia, and Wyoming – follow the federal rate. The rates in all of these states will change along with the federal rate.
Creditor Garnishments
The increases in the federal minimum wage will significantly affect the calculation of the amount that can be garnished to repay a debt. For example, the federal Consumer Credit Protection Act (CCPA) states that the maximum amount of an employee’s "disposable earnings" that can be garnished to repay a debt is the lesser of:
• 25% of the employee’s disposable earnings for the week; or
• the amount by which the employee’s disposable earnings for the week exceed 30 times the federal minimum hourly rate then in effect.
AMERICAN PAYROLL ASSOCIATION Compliance Update, May 31, 2007
