The federal minimum wage rises again next month but there’s more involved than just issuing fatter paychecks. Here are three steps your Payroll office should take by July 24 to ensure you comply with several laws intertwined with the federal minimum wage:
1. Adjust creditor garnishment amounts. Employees with creditor garnishments in place may start receiving even smaller paychecks. Payroll must base withholding for these orders using the federal minimum wage in effect when the person gets paid, not when the order was issued. So, if a creditor garnishment was received in January when the federal minimum wage was $6.55 per hour, withholding would be based on that amount through July 23, then on the new $7.25 rate beginning on July 24. (Give employees a heads up – otherwise, they’re bound to have questions about the increase.)
Be careful – there are limits to how much can be withheld. Under the Consumer Credit Protection Act, Payroll may only withhold from employees’ wages to repay a creditor debt the lesser of:
• 25% of disposable wages, or
• the amount by which the disposable earnings are greater than 30 times the federal minimum wage. That’s $217.50, or $7.25 per hour x 30, for someone paid weekly.
2. Watch out for improper deductions. Under the Fair Labor Standards Act (FLSA), employers can’t make deductions from an employee’s paycheck for items that reduce workers’ wages below the federal minimum wage, such as cash or merchandise shortages, employer-required uniforms or tools.
3. Check the tip credit. The FLSA says you may pay tipped employees $2.13 per hour, as long as tips are enough to make up the rest of the federal minimum wage. On 7/24/09, the tip credit changes to $5.12 ($7.25 – $2.13), up from $4.42 ($6.55 – $2.13).
More help
If you need additional info, the U.S. Department of Labor offers these useful resources:
1. Minimum-wage fact sheet.
2. Q&As.
