Minnesota’s New Minimum Wage: A Cheat Sheet for Ensuring Compliance

April 22, 2014

By Mary M. Krakow

Minnesota’s new minimum wage already is causing employers to ask many questions before its first effective date of August 1, 2014. Key questions include – What is the new minimum wage? Does it apply to my employees? and, How do I know whether to use the federal or the Minnesota minimum if they differ?

Minimum wage applies only to “non-exempt” employees. “Non-exempt” employees are those employees who do not fall within one of the law’s narrow “exempt” categories (e.g., executives, professionals, certain limited administrative employees, outside sales employees, etc.). In practical terms, “non-exempt” is the default classification that applies to the majority of employees. All “non-exempt” employees must receive no less than the applicable minimum wage for each hour worked, keep a written record of all time worked, and receive overtime pay (time and one-half) for all hours worked over the applicable number (40 hours under federal wage law; 48 hours under Minnesota wage law) in a workweek (the company’s designated 7-day work period).

Under Minnesota’s new minimum wage law, the Minnesota minimum wage will go up on August 1, 2014, again on August 1, 2015, and again on August 1, 2016. On January 1, 2018, and each January 1st thereafter, the rate may go up again if the Commissioner of Labor and Industry finds an increase is needed to keep up with the rate of inflation unless there is “the potential for a substantial downturn in the state’s economy.”

When both the federal and state wage laws apply and their minimum wages differ, an employer always must pay its non-exempt employees the higher applicable minimum wage for each regular hour worked.

To determine if the federal wage law applies, a two-step analysis generally is required:

  1. Does the company have employees “engaged in commerce or in the production of goods for commerce” and have $500,000 (exclusive of excise taxes at the retail level that are separately stated) or more gross volume of sales made or business done per year? If yes, federal wage law applies to all employees in the company (referred to as “enterprise coverage” under federal wage law). (Hospitals and other institutions engaged in caring for the sick and aged, schools and public agencies generally also are covered by federal wage law.)

  2. Even if the company answers no to question #1, the company must ask this question for each employee: Is the employee “engaged in commerce or in the production of goods for commerce”? If yes, federal wage law applies to that employee.

As to both questions, federal wage law defines “engaged in commerce or in the production of goods for commerce” very broadly. While a full discussion of the definition is beyond the scope of this article, suffice it to say that the very broad definition means only a few employees are not covered by federal wage law.

The new Minnesota wage law continues to offer two different minimum rates depending on the amount of the company’s annual gross volume of sales made or business done, and a separate minimum wage for employees under age 20 for the first 90 consecutive days of employment (commonly referred to as a “training wage”). Also, for the first time, Minnesota wage law includes different minimum wages for employees under age 18 if working for a “large employer” and for certain employees of hotels, motels, lodging establishments and resorts but only if the employees meet the statutory requirements. Also, Minnesota’s new wage law did not change Minnesota’s rule prohibiting employers from using tips (gratuities) to satisfy the applicable minimum wage requirement for any employee.

The following chart takes into consideration both the federal and Minnesota wage laws and provides employers guidance for compliance with the new Minnesota minimum wage requirements:

Beginning August 1, 2014:

 

8/1/14

8/1/15

8/1/16

1/1/18

Employees of companies with less than $500,000 gross volume of sales made or business done per year (Minnesota’s “small employer” definition beginning 8/1/14) who are not engaged in commerce or in the production of goods for commerce (i.e., only a few employees)

Minn.:
$6.50
*

Fed.:
$7.25

Minn.:
$7.25*

Fed.:
$7.25*

Minn.:
$7.75*

Fed.:
$7.25

Minn.:
t/b/d/ by the Comm’r of Labor but not decreased*

Fed.:
$7.25

Employees of companies with less than $500,000 gross volume of sales made or business done per year (Minnesota’s “small employer” definition beginning 8/1/14) who are engaged in commerce or in the production of goods for commerce (i.e., most employees regardless of company size)

Minn.:
$6.50

Fed.:
$7.25*

Minn.:
$7.25*

Fed.:
$7.25*

Minn.:
$7.75*

Fed.:
$7.25

Minn.:
t/b/d by the Comm’r of Labor but not decreased*

Fed.:
$7.25

Employees of companies with $500,000 or more gross volume of sales made or business done per year (Minnesota’s “large employer” definition beginning 8/1/14 and the current dollar amount for “enterprise coverage” under the federal wage law)

Minn.:
$8.00*

Fed.:
$7.25

Minn.:
$9.00*

Fed.:
$7.25

Minn.:
$9.50*

Fed.:
$7.25

Minn.:
t/b/d/ by the Comm’r of Labor but not decreased*

Fed.:
$7.25

Employees under age 20 for the first 90 consecutive days of employment only

Minn.:
$6.50*

Fed.:
$4.25

Minn.:
$7.25*

Fed.:
$4.25

Minn.:
$7.75*

Fed.:
$4.25

Minn.:
t/b/d by the Comm’r of Labor but not decreased*

Fed.:
$4.25

Employees under the age of 18 working for a “large employer.” (Note that the new Minnesota wage law would allow paying $6.50 per hour to these employees for one year beginning 8/1/14, but the federal minimum will still apply, when higher, for any such employee “engaged in commerce or in the production of goods for commerce” (i.e., most employees)

Minn.:
$6.50

Fed.:
$7.25*

Minn.:
$7.25*

Fed.:
$7.25*

Minn.:
$7.75*

Fed.
$7.25

Minn.:
t/b/d by the Comm’r of Labor* but not decreased

Fed.
$7.25

Employees of companies that are a “hotel or motel,” “lodging establishment,” or “resort” as defined in Minn. Stat. § 157.15, subds. 7, 8, and 11, working under a contract that includes the provision by the employer of a food or lodging benefit, if the employee is working under authority of a summer work travel exchange visitor program (J) nonimmigrant visa

Minn.:
$7.25*

Fed.:
$7.25*

Minn.:
$7.50*

Fed.:
$7.25

Minn.:
$7.75*

Fed.:
$7.25

Minn.:
t/b/d by the Comm’r of Labor but not decreased*

Fed.:
$7.25

The higher applicable minimum wage must be paid and is marked with a * symbol and is in bold print. The above chart presumes no change in the federal minimum wage from the current $7.25. Also, the Minnesota statute prohibits employers from taking any action to displace an employee, including a partial displacement through a reduction in hours, wages, or employment benefits, in order to hire an employee at a lower authorized wage.