Why it matters: President Barack Obama’s State of the Union address contained some important news for employers: a raise of the federal minimum wage to $10.10 per hour. The President already made good on his promise, issuing an Executive Order on February 6. The previous federal minimum wage of $7.25 had not been raised since 2009. In his remarks to Congress, President Obama noted that the rate hike reflects a trend in state legislatures, following the likes of Connecticut and Rhode Island. The trend is also continuing into 2014, with a new law enacted in Delaware and legislation introduced in California. President Obama encouraged other states to act in his State of the Union address: “To every mayor, governor, state legislator in America, I say, you don’t have to wait for Congress to act; Americans will support you if you take this on.” Employers should be cognizant of wage-related legislation, particularly as many of the laws use a step system to raise rates over time (up $1 each year over a period of two years, for example).

Detailed Discussion

President Obama issued the Executive Order on February 6 with a stated purpose to “increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by increasing to $10.10 the hourly minimum wage.”

“Raising the pay of low-wage workers increases their morale and the productivity and quality of their work, lowers turnover and its accompanying costs, and reduces supervisory costs,” according to the Order. “These savings and quality improvements will lead to improved economy and efficiency in Government procurement.”

The new minimum wage will apply prospectively to federal contractors and subcontractors beginning January 1, 2015. However, contractors may see the increase sooner as the Executive Order provided that for any new contracts negotiated after February 12, “agencies are strongly encouraged to take all steps that are reasonable and legally permissible to ensure that individuals working pursuant to those contracts and contract-like instruments are paid an hourly wage of at least $10.10.”

In addition, the Order established that the federal minimum wage will be adjusted on an annual basis going forward. Beginning January 1, 2016, the Secretary of Labor shall determine the amount of the federal minimum wage each year based on the Consumer Price Index, rounded to the nearest multiple of $0.05.

The Secretary of Labor has until October 1, 2014, to promulgate regulations implementing the Order.

In addition to the federal minimum wage, state legislators are continuing the trend of raising the hourly rate.

Already in 2014, Washington, D.C., Mayor Vincent C. Gray signed the Minimum Wage Amendment Act into law. If Congress approves – or declines to act within 30 days – the law will raise the hourly rate from $8.25 to $11.50 on July 1, 2016, in three increments.

On January 30, Delaware Governor Jack Markell signed into law Senate Bill 6, a stepped increase that will push the state from its current $7.25 to $7.75 on June 1, 2014, and up again to $8.25 on June 1, 2015. The change is the state’s first rate hike since 2009.

Lawmakers in California have introduced a bill to further increase the state’s rate to $13 in 2017. Governor Jerry Brown signed an increase into law last year that provided for a scaled increase from $8 in 2013 to $9 in 2014 and $10 by January 1, 2016.

State Sen. Mark Leno (D-San Francisco)’s S.B. 935 would continue the increase in California to $11 in 2015, $12 in 2016, and $13 in 2017. Beginning in 2018, the state’s minimum wage would adjust automatically to the rate of inflation. California already has one of the nation’s highest rates; if passed, the new bill would cement its status as the state with the highest minimum wage.

To read the Executive Order, click here.

To read 20-459, or the D.C. Minimum Wage Amendment Act, click here

To read Senate Bill 6, click here

To read S.B. 935, click here.