The Proposed Federal Covid-19 Relief Bill Includes A $15 Minimum Wage Hike And Elimination Of The Tip Credit. Will Those Provisions Survive?

Jackson Lewis P.C.

Making good on President Biden’s campaign promise, the House of Representatives has included in its $1.9 trillion Covid-19 relief bill, known as the “American Rescue Plan Act of 2021,” revisions to the Fair Labor Standards Act (FLSA) that would increase the federal minimum wage to $15 per hour by 2025. The current federal minimum wage is $7.25 and has not increased since 2009. Under the proposal, the minimum wage would almost immediately increase to $9.50 per hour, then would increase annually by $1.50 per hour until reaching $15 in 2025. Each year thereafter, any further increase would be based on the median hourly wage of all employees for the prior year.

In addition, under the bill the $2.13 minimum wage, known as the “tip credit,” that employers currently may pay to employees who customarily and regularly receive at least $30 per month in tips, would be eliminated by 2025, requiring employers by then to pay both tipped and non-tipped employees the same. In a similar, stepped fashion to the standard minimum wage, the tip credit initially would increase to $4.95 per hour and then would annually increase $2.00 per hour until it matched the standard minimum wage.

The bill also would eventually eliminate an FLSA provision that currently allows employers to pay a subminimum wage to employees under the age of 20 who are within the first 90 days of their employment, as well as a provision that allows an employer to obtain a certificate from the Secretary of Labor to pay a subminimum wage to its employees with physical or mental disabilities.

Whether these minimum wage provisions will remain in the Covid-19 relief belief is questionable. The non-partisan Congressional Budget Office (CBO) estimates that, by 2025, a $15 minimum wage would increase pay for 17 million people and pull 900,000 out of poverty. But the CBO also estimates that about 1.4 million jobs would be lost, as employers eliminate jobs to account for their higher labor costs. Some economists disagree with the CBO’s latter conclusion, pointing to studies that show minimum wage increases at the state level over the past several years have not resulted in significant job losses, if any at all. How Economists See Biden’s $15 Wage Proposal.

Nevertheless, the minimum wage provisions may not be allowed to remain in the pandemic relief bill if, as anticipated, Congressional Democrats seek to pass it without significant Republican support, using the procedure known as reconciliation. While the Senate may use reconciliation to pass bills with only a simple 51-vote majority versus the 60-vote supermajority threshold required to defeat a filibuster, there are limits on the types of laws that may be passed using reconciliation – and the minimum wage provisions may be deemed outside of those limits. Specifically, the fact that the minimum wage provisions are merely incidental to the primary purpose of the relief bill, as well as the fact that the minimum wage provisions are not within the jurisdiction of the Budget Committee proposing the bill, likely would cause some senators to object to the provisions, which would then require a 60-vote supermajority to overcome. As a result, President Biden has acknowledged that due to the limits of reconciliation, his proposed minimum wage hike is unlikely to ultimately remain in the relief bill and would instead have to be addressed separately. Biden Doesn’t Think $15 Minimum Wage Hike Will Survive COVID-19 Relief Bill.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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