As of July 1, both Maryland’s and the District of Columbia will increase the minimum wage.  Maryland’s minimum wage will increase to $8.75 per hour while the District of Columbia’s will increase to $11.50 per hour.  Employers should be prepared to implement these changes on July 1 to avoid wage complaints and make the appropriate changes to their business models to remain competitive.

Maryland

The raise in the Maryland minimum wage is a result of legislation that was passed in May of 2014.  The Maryland Minimum Wage Act of 2014 calls for the minimum wage to ultimately be raised to $10.10 per hour by July of 2018.  The raise that will go into effect in less than two weeks is a .50 cent increase from the current $8.25 minimum wage.  Although the minimum wage is set to increase, there is no increase in the amount employers are required to pay tipped employees.  Therefore, employees receiving over $30 per month in tips only need to be paid $3.63 per hour, and the remainder may be supplemented by the tip credit.

Employers in Montgomery County and Prince George’s County, Maryland, the two counties neighboring the Washington, D.C. area, should also take note that the counties are increasing their minimum wage to $10.75 per hour on July 1, 2016.  This increase is $1.20 more than the current minimum wage in both counties.  Similar to the state law, there will be no increase in the amount that employers are required to pay tipped employees.  Employers in Prince George’s County are required to pay tipped employees $3.63 per hour while employers in Montgomery County are required to pay $4.00 per hour.

Employers in Montgomery County and Prince George’s County should also be prepared for further increases in the future, as legislators in both counties have joined what has been somewhat of a national trend to increase the minimum wage to $15.00 per hour by July 2020.

District of Columbia

Pursuant to the Minimum Wage Amendment Act of 2013, the minimum wage in the District of Columbia will go up $1 from $10.50 per hour to $11.50 per hour.  The hourly rate that tipped employees receive is not scheduled to change.  Thus, employers will only have to cover the initial $2.77 per hour and the remainder may be covered by the tip credit.

While legislation to increase the minimum wage to $15.00 per hour are underway in Montgomery County and Prince George’s County in Maryland, the D.C. City Council has already voted to raise the minimum wage to $15.00 per hour by 2020.  Mayor Muriel Bowser, a strong supporter of this initiative, is expected to approve the legislation soon.  On June 7, 2016, the City Council unanimously approved the Fair Shot Minimum Wage Amendment Act of 2016 by a vote of 13-0.  Once enacted, the increase in the minimum wage to $15.00 per hour will be staged over the next four years, as follows:

• July 1, 2017 – $12.50 per hour
• July 1, 2018 – $13.25 per hour
• July 1, 2019 – $14.00 per hour
• July 1, 2020 – $15.00 per hour

The law will also increase the minimum wage for employees who receive gratuities from the current $2.77 per hour rate – the rate that has been in place since 2005:

• July 1, 2017 – $3.33 per hour
• July 1, 2018 – $3.89 per hour
• July 1, 2019 – $4.45 per hour
• July 1, 2020 – $5.00 per hour

Following 2020 when the minimum wage reaches $15.00 per hour and $5.00 per hour for tipped employees, the minimum wage will be increased each year to match the area’s Consumer Price Index as set by the Bureau of Labor Statistics.  This legislation is not surprising as it came on the heels of increased pressure to increase the minimum wage in D.C..  The D.C. Board of Elections was scheduled to hold a public hearing on the Fair Minimum Wage Act of 2016 on July 1, 2016, a similar initiative, that would have likely been on the D.C. voters’ ballots in the Fall of 2016.

Steps to Manage the Increase in the Minimum Wage

In preparation for the increase in the minimum wage at both the state and local level, employers should be prepared for the July 1, 2016 roll-out.  Naturally, many employers will need to adjust how they operate their business in order to remain competitive.  First, employers should carefully assess the company’s financial condition and take time to calculate the company’s revenue, profits, and expenses.  A detailed report of your cash flow will help evaluate how the company should handle the increase in the minimum wage with respect things like hiring, firing, employee hours, overtime, and pricing.

Second, employers can review their business model and generate ways to operate the business more efficiently.  Analyzing what employees actually spend their time doing throughout the workday is a good way to evaluate employee productivity and where changes can be made to save.  This will also help employers eliminate wasteful work activities and decrease operating costs.  Employers can also generate innovative ideas to get work done with fewer employees, such as providing incentives that motivate employees to perform at a high level.

Finally, employers should also evaluate how much overtime employees currently receive.  An increase in the minimum wage also means that employers will have to pay more in overtime.  Reducing or even eliminating the amount of overtime employees can have could help employers, especially small businesses, save on operating cost.

It is important for employers to take these steps prior to raising any prices.  An immediate rush to increase operating costs has the potential to harm a business more than it can help.  Taking proactive measures to keep your costs down while operating in a more efficient and productive manner will outweigh the potential harm that the business may suffer from increasing prices.  Time will tell whether prices should be raised, but staying ahead of the curve by taking steps to keep operating costs low and prices competitive will make a business more attractive in the market.