$15 federal minimum wage: How it works, biggest hurdles, what next – CNET

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Will Americans get a pay raise across the board? 


Sarah Tew/CNET

Will a new law to gradually increase the federal minimum wage to $15 per hour make it into the final $1.9 trillion COVID-19 stimulus plan, or would President Joe Biden have to try again later? How does the gradual increase work, and what are the differences for employees who make most of their money in tips and for employees with disabilities? Why is federal minimum wage a hot button issue during the COVID-19 pandemic?

“Here’s the deal: It’s about doing it gradually. We’re at $7.25 an hour. No one should work 40 hours a week and live in poverty,” Biden said Tuesday about minimum wage on a Town Hall hosted by CNN. “So let’s say — you said you’re going to increase the minimum wage from $7.25 an hour, between now and the year 2025, to $12 an hour, to $13 — you double someone’s pay — and the impact on business would be absolutely diminished … and it would generate economic growth.” 

Biden’s American Rescue Plan — which would also approve a third stimulus check, extend $400 weekly unemployment benefits and allocate money for COVID-19 vaccine distribution — currently includes language for the $15 federal minimum wage, which will go to the Senate. But it could be stripped out because it doesn’t meet certain rules that apply to the unique way the bill will pass, or if even one Democratic senator says they won’t vote on a COVID-19 relief package with the minimum wage increase in it.

“We’re very proud of [the $15 minimum wage plan],” House Speaker Nancy Pelosi said Feb. 11. “Twenty-seven million people will get a raise, 70% of them women.”

Although poll after poll shows a majority of Americans support the higher wage, there is still strong opposition to the increase in Congress, which could prolong the fight. We’re going to answer key questions about who the minimum wage would apply to, how the timeline would work, what happens if it isn’t in the next stimulus package and where the situation stands today. 

How much would the minimum wage increase every year?

Biden’s plan calls for an increase to the federal minimum wage between now and 2025, and to end the “tipped minimum wage” (for people whose income is based largely on tips, like restaurant servers) and subminimum wage for people with disabilities. Workers who receive at least $30 in tips a month qualify for the “tipped wage,” which is split between a $2.13 minimum cash wage and a $5.13 maximum tip credit with both combining to $7.25. 

According to the Fair Labor Standards Act, certain groups qualify for a wage below the minimum, which is currently $4.25. This includes student workers, those under the age of 20 and workers with a physical or intellectual disability. 

While legislation is required to raise the national minimum wage, Biden can increase the wage for federal workers via executive order. On Jan. 22, he signed an order to have the Office of Personnel Management provide recommendations for a $15 an hour wage for federal workers, as a starting point.

The Raise the Wage Act of 2021 in the House and Senate lays out how the gradual increase will look from now until 2027. Here’s a breakdown of how the bill would affect the minimum wage, the tipped wage, the youth wage for workers under the age of 20 and the 14(c) subminimum wage for workers with disabilities.

Minimum wage raise proposal by year (Raise the Wage Act)

Minimum wage Tipped wage Youth wage 14(c) wage
Current $7.25 $2.13 $4.25 $4.25
2021 $9.50 $4.95 $6.00 $5.00
2022 $11.00 $6.95 $7.75 $7.50
2023 $12.50 $8.95 $9.50 $10.00
2024 $14.00 $10.95 $11.25 $12.50
2025 $15.00 $12.95 $13.00 $15.00
2026 $15.00 $14.95 $14.75 $15.00
2027 $15.00 $15.00 $15.00 $15.00

What’s the current minimum wage? Is it the same in every state?

The federal minimum wage for $7.25 an hour was decided in 2009. States and cities, however, can dictate their own hourly minimum, based on local economics, for example. Washington has the highest among the states at $13.69, and Seattle is the major city with the top minimum wage of $16.69 for most workers, beginning Jan. 1, 2021. 

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A minimum wage raise would happen gradually over the course of years.


Sarah Tew/CNET

Why raise the minimum wage in stages instead of all at once? 

Gradually raising the federal minimum wage gives employers and the economy an opportunity to catch up to changes in ways more prone to keeping pace with inflation and avoiding bankrupting small businesses by requiring them to immediately double each employer’s pay.

Biden and other backers of the $15 national minimum wage will likely need to address it in a bill or package that’s separate from Biden’s $1.9 billion American Rescue Plan. The Senate voted 99-1 on an amendment to not raise the wage during the pandemic, which had the support of Sen. Bernie Sanders, the Senate Budget Committee chairman.

“I will support this amendment because nobody is talking about doubling the federal minimum wage during the pandemic,” Sen. Sanders said on Feb. 5. “We’re talking about gradually phasing it in over a five-year period.”

Although the pay increase wasn’t included in the package, the vote to prevent wages from going up during the pandemic was nonbinding, which means it could be added at a later date. 

Biden reiterated this gradual phase-in during his town hall Feb. 16

What are the hurdles to raising the federal minimum wage to $15 an hour? 

Opponents of the minimum wage in both the House and Senate cite several issues with raising the wage to $15 an hour. The most common reasons cited are the potential for job losses, putting a strain on small businesses and an increase in the price of goods. 

Raising the hourly wage to $15 would result in an average of 1.4 million jobs lost over the course of four years, according to a report from the Congressional Budget Office released on Feb. 8 analyzing the Raise the Wage Act of 2021. The increase would also bring 900,000 people out of poverty. 

There are other studies that show in cities where the minimum wage was increased to more than $10 an hour there was either a small loss of jobs or an increase. 

What happens now?

There are currently two courses of action to increase the federal minimum wage. As previously mentioned, the economic relief package passed by the Senate on Feb. 5 is currently in the House of Representatives. Committees are continuing working on legislation that will be voted on, and if approved, sent back to the Senate for a vote and then to the president for his signature. 

The second course of action is a standalone bill to raise the minimum wage. Before both chambers of Congress approved the budget reconciliation for Biden’s package, House and Senate Democrats introduced the Raise the Wage Act of 2021, which would begin annual increases until 2025. 

There is a third course of action, and it’s from the Republicans. Sen. Mitt Romney, a Republican from Utah, and Sen. Tom Cotton, a Republican from Arkansas, proposed their own minimum wage bill. The two senators did not reveal all the details yet, but they did say that the increase would come with a stipulation of preventing businesses from hiring illegal immigrants. 

For more information about bills in Washington aimed at bringing households more money, here’s how a proposal to expand the Child Tax Credit could send families a check every month for a year, and the latest stimulus check timeline, payment limits and qualifications.

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