Last Week in Payroll: Minimum Wage

Minimum Wage

The minimum wage rate has been a hotly debated topic at the national level for some time.  The last federal minimum wage rate increase took effect on July 24, 2009 when the rate was increased to $7.25 per hour.  President Biden’s American Rescue Plan Act (ARPA) initially included a provision to increase the national minimum wage rate to $15.00 per hour incrementally by 2025.  That provision did not make it into the final version of ARPA, however, President Biden did sign an executive order on April 27, 2021 that will increase the minimum wage rate to $15.00 per hour for federal contractor workers in 2022.

According to a February 2021 Bureau of Labor Statistics report, 73.3 million workers age 16 and older were paid at an hourly rate in 2020.  This represents 55.5% of all wage and salary workers.  Of those 73.3 million, 247,000 workers were paid at the $7.25 per hour federal minimum wage rate.  About 865,000 had wages below the federal minimum wage rate. These combined workers total 1.5% of all hourly-paid workers.  This is down from 1.9% in 2019. In 1979, 13.4% of hourly workers were paid at the federal minimum wage rate or below (this was the first year when such data began being collected).

A reason why these statistics have been on a continuing decline may be in part because a number of states and localities have enacted their own minimum wage laws. Many of these laws incrementally increase the jurisdiction’s minimum wage rate over a period of time.  Then, minimum wage rate adjustments for the state or locality are based on the Consumer Price Index (CPI) or other cost of living adjustments.

Although it is possible to automate payroll systems to account for these minimum wage increases, it is a good idea for payroll professionals to be aware of these changes to avoid the possibility of underpaying employees. There may also be adjustments to consider for the tip credit and other factors depending on the jurisdiction. The Thomson Reuters Checkpoint payroll product includes charts that list all state and local minimum wage rate changes that can offer additional assistance.

A number of state and local minimum wage increases take effect on January 1.  However, some state and local minimum wage rates changes take effect on July 1. Let’s take a look at some of the minimum wage rate changes taking effect this Thursday:

States changing their minimum wage on July 1, 2021:

• District of Columbia: $15.20 per hour.
• Nevada: $9.75 per hour.
• New York: $15.00 per hour for fast-food workers outside of New York City (includes Nassau, Suffolk and Westchester). Note: NYC’s fast-food workers are already paid $15.00 per hour.
• Oregon: $12.00 per hour for non-urban counties, $12.75 per hour for standard counties and $14.00 per hour for the Portland Metro area.

Localities changing their minimum wage on July 1, 2021:

• Berkeley, California: $16.32 per hour.
• Emeryville, California: $17.13 per hour.
• Fremont, California: $15.25 per hour ($15.00 per hour for small employers).
• Los Angeles City, California: $15.00 per hour for both large and small employers.
• Malibu, California: $15.00 per hour for both large and small employers.
• Milpitas, California: $15.65 per hour.
• Pasadena, California: $15.00 per hour for both large and small employers.
• San Francisco, California: $16.32 per hour.
• Santa Monica, California: $15.00 per hour for both large and small employers.
• Chicago/Cook County, Illinois: $14.00 per hour for small employers and $15.00 per hour for large employers (21 or more employees).
• Montgomery County, Maryland: $15.00 per hour for large employers, $14.00 per hour for mid-sized employers (11 to 50 employees) and $13.50 per hour for small employers.
• Minneapolis, Minnesota: $14.25 per hour for large employers (more than 100 employees) and $12.50 per hour for small employers.

Now let’s go over some federal and state payroll stories from the past week.

Federal News

IRS issues Form 941 and instructions. The IRS has issued the much anticipated revised Form 941, Employer’s Quarterly Federal Tax Return, and its instructions for used beginning with the second quarter of 2021. This version takes into account COVID-19 payroll-related provision included in the American Rescue Plan Act (ARPA), which was signed into law on March 11, 2021. This includes the credit for qualified sick and family leave wages and the employee retention credit.  Both were amended and expanded by ARPA. It also includes the new COBRA premium subsidy credit, also included in ARPA.  The IRS also posted the instructions for Schedule B (Form 941 and Schedule R (Form 941).

Supreme Court rules on ACA challenge. The U.S. Supreme Court issued a ruling regarding the constitutionality of the Affordable Care Act (ACA).  The Court held in a 7 to 2 opinion that the states and individuals who brought the lawsuit challenging the ACA’s individual mandate do not have standing to challenge the law. The ACA was enacted in 2010 and required most Americans to obtain minimum essential health insurance coverage and imposed a monetary penalty on individuals who failed to get such coverage. In 2017, an amendment to the ACA nullified the penalty by setting it to zero. Texas, along with more than 12 other states and two individuals, brought a lawsuit against federal officials by claiming that without the penalty, the ACA’s minimum essential coverage provision is unconstitutional. The Court said the plaintiffs could not challenge the law because they have not shown a past or future injury fairly traceable to the defendants’ conduct enforcing the specific statutory provision they say is unconstitutional.

Juneteenth is a federal holiday. Legislation was signed into law that establishes Juneteenth as a federal holiday. The holiday makes a total of 12 annual federal holidays. Generally, if a tax filing or payment deadline falls on a weekend or legal holiday, the due date is the next business day.

Labor Department issues proposed dual job tip regulations. The U.S. Department of Labor has issued proposed dual job tip regulations that withdraw certain portions of the 2020 final tip regulations and re-propose new regulations to clarify that an employee is only engaged in a tip occupation when the employee either performs work that produces tips or performs work that directly supports the tip producing work as long as the directly supported work is not performed for a substantial amount of time.

New H-2B employer hub. The U.S. Citizenship and Immigration Services (USCIS) has launched a H-2B Data Hub, which provides information to the public on employers petitioning H-2B visa workers. H-2B visas are to employ foreign workers for temporary nonagricultural jobs.

State and Local News

Storm relief for tropical storm victims. Alabama has announced tax filing and payment extensions to state taxpayers affected by Topical Storm Claudette. The extension is July 20, 2021 for tax returns and payments due on or after June 18, 2021 and before July 20, 2021.  This includes withholding taxes.

Unemployment work search requirements. California has announced that the work search requirements for unemployment benefits will resume on July 11, 2021.  They were suspended due to the COVID-19 pandemic.

State budget contains provisions related to revenue. Connecticut legislation contains a number of payroll-related provisions that includes requiring employers subject to the state’s unemployment law to report certain data about each employee in their quarterly wage reports (waiver option and certain exemptions apply). The bill also includes amendments to paid family and medical leave and time off for employees for state and special elections.

Telework provision to expire on June 30. Indiana has announced that the accommodation for state residents temporarily working from home due to a physician’s order expires on June 30, 2021. The provision stopped the use of an employee’s home as a basis for establishing nexus for withholding if the employer did not otherwise have nexus within the state.

Income tax rates to change in 2023. Iowa has enacted legislation that will drop the tax rate from 8.53% to 6.5% and reduce the number of tax brackets from nine to four in 2023.

Voter approval for tax bracket reduction. Louisiana has enacted legislation that will reduce the maximum rate of individual income tax (from 6.0% to 4.75%) and provide for a federal income tax deduction allowing for income taxes paid to be a deductible item in computing state income taxes for the same period. The legislation needs voter approval at the statewide election on October 9, 2021.

Telecommuting rule expire in September. Massachusetts has informed taxpayers that the telecommuting rules to minimize disruption for employers and employees during the COVID-19 pandemic will expire on September 13, 2021.

Charging unemployment benefits. North Dakota has resumed charging employer accounts for unemployment benefits relating to the COVID-19 pandemic. A state executive order stopped charging these benefits in 2020 and through April 30, 2021.  A recent executive order ended the state’s prior emergency order due to the pandemic.

Telecommuting guidance ends June 30. Pennsylvania has announced that the guidance relating to telecommuting and tax implications in response to the COVID-19 pandemic will end on June 30, 2021. The guidance provided that if an employee is working from home temporarily due to the COVID-19 pandemic, the DOR would not consider that as a change to the sourcing of the employee’s compensation.

Withholding guidance for teleworking updated. Vermont has updated its guidance for employers of relocated or remote workers.

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