With the week-long Memorial Day congressional recess looming, President Bush signed into law an increase in the Federal minimum wage on Friday, May 25. This is the first time in a decade that the minimum wage has been raised. The wage increase was added to the most recent Iraq war funding bill.
The new law will raise the minimum wage in three $.70 increments over 26 months until to reaches $7.25 per hour. The first increase (up to $5.85) will occur this summer or to be specific, 60 days after the takes effect. The second increase (up to $6.55) and third increase (up to $7.25) will take place one and two years respectively, after the date of the first increase.
In addition, the new law contains $4.84 billion of tax relief for small businesses to help offset the cost of the mandated wage increase to employers. These tax law changes include a three-and-a-half year extension of the Work Opportunity Tax Credit (WOTC), which gives employers tax credits for hiring individuals from one or more of nine targeted groups. Also, disabled veterans were added as a targeted group under WOTC.
It's important to note that previous versions of the minimum wage tax package had included a limit to non-qualified deferred compensation arrangements, but this requirement was taken out of the final approved bill.
The new law also will gradually apply, for the first time, the Fair Labor Standards Act to American Samoa and the Commonwealth of the Northern Mariana Islands. This means both territories will now be subject to the Federal minimum wage standard.