Most small businesses are aware of the increase in the minimum wage this past January (2017). Most are also aware that this increase is the first step in a five year plan to increase the minimum wage to $15 dollars an hour. In light of the fact that, according to the Economic Policy Institute, the minimum wage has not provided workers with a “fair and livable wage” since 1968, this wage increase is a positive change. Many workers celebrated this change and continue to celebrate the five-year plan being implemented in 40 states across the country.
However, not everyone is rejoicing. Small business owners are feeling a bit conflicted, and understandably so. However, higher minimum wages could lower the employee turnover rate and keep company morale up. A boost in minimum wage can actually boost business and cash flow.
Although the positive aspects of an increased minimum wage benefits both employers and employees, there are some downsides. A higher minimum wage can also prevent the growth of a business by preventing an owner from hiring the extra personnel needed to expand. And almost all small business trade associations don’t see the need to raise the minimum wage and view it as another cost burden impacting a business’ profitability. It can also force a business to downsize just to stay afloat.
The three (3) states in our region have quite different hourly minimum wage tax requirements. In New Jersey (NJ), the minimum hourly wage is $8.44. In New York (NY) the hourly minimum wage rate is $9.70, while In Pennsylvania (PA), the minimum wage is merely $7.25 per hour.
In addition, the above three states have differing rules amounts withheld from employees for unemployment and disability insurance. New Jersey has the most onerous burden for both employees and employers: in 2017 employees and employers must pay taxes to the Department of Labor for unemployment and disability insurance on wages until they earn $33,500.00. New York State employees have disability taxes withheld on .5% of their wages up to a maximum of $31.20 per year, while employers pay into the unemployment fund until the employee earns $10,900.00. Pennsylvania requires unemployment taxes be withheld from employees at a 0.07% rate with no annual earnings limit while employers remit unemployment tax on the first $9,750 in employee earnings.
So what is a small business owner to do? Businesses have to comply with minimum wage laws after all.
Our advice is for you to be aware of four basic things to help you comply with minimum wage requirements while making sure you are not one of the businesses forced to downsize due to a minimum wage increase in your state.
• You need to know the exact jurisdiction that your business is in so you can comply with the appropriate requirements. Your postal zip code is not always an accurate indicator of jurisdiction, so a little research may be required. Additionally, if you have employees working from multiple locations or working remotely, determining the jurisdiction that they are actually working in becomes increasingly difficult.
• There are different minimum wage requirements based on the size of your business, the employee benefits you offer, your industry type, and the type of work your employees do. As a business owner, you should make an effort to learn what tax breaks you may be eligible for based upon these factors. A good way to stay on top of changing rates and requirements is to sign up to receive alerts for changes and rate rises through your payroll software.
• Having access to exactly how many hours each employee works at any time is helpful when trying to comply with minimum wage and overtime requirements, whether your employee is salary or hourly based. Ensure that you have this information available at all times.
• If you pay employees in a particular city, the local council can call meeting and change the minimum wage rate at any time. And State Departments of Labor or Revenue may introduce minimum wage increases, although these changes generally take more time to implement. A great example of a change was the requirement for New York State employers to withhold Paid Family Leave (PFT) from employees effective on July 1, 2017!
It is imperative to be aware of these changes as they are rapid, sudden, and not always communicated throughout the community. We recommend that you get on the email list for your local or state Department of Revenue or Taxation in an attempt to remain informed on any changes regarding minimum wage or new withholding tax requirements.
But how do most business owners stay on top of their business AND remain informed about the constantly changing minimum wage requirements?—They call their accountants for help! We at Mazur & Associates are here to help you make sure that the minimum wage increase doesn’t cause your business to downsize and experience financial hardship. We are available via telephone and email. Call (732) 936-1230 or email firstname.lastname@example.org and set up an appointment today! www.MazurCPAs.com