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HR Solutions: Minimum Wage, Record Retention, Major Change

HR Magazine, September 2007 Minimum Wage, Record Retention, Major Change

Q: I have tipped employees. How does the new Fair Minimum Wage Act of 2007 affect their pay and tip credit?

A: The Fair Minimum Wage Act of 2007, signed into law by President Bush on May 25, 2007, does not change the per-hour minimum that must be paid in cash to tipped workers; it will only serve to increase the “tip credit” that an employer is allowed to take for the difference between the minimum wage and the hourly amount it pays its employees.

The act increases the federal minimum wage for the first time in 10 years. In a three-step process, it increased to $5.85 on July 24, 2007, and will increase to $6.55 on July 24, 2008, and $7.25 on July 24, 2009. But since a 1966 amendment to Section 3(m) of the Fair Labor Standards Act (FLSA), employers with tipped employees have enjoyed a benefit of reducing the cash minimum wage required to be paid to tipped workers, declaring a “tip credit” for the difference between the standard federal minimum wage and the “cash” minimum wage for tipped employees, when that difference is made up by the tips earned by the employees.

In 1996, Section 2105(b) of the Small Business Job Protection Act amended Section 3(m) of the FLSA to set the minimum cash wage for tipped employees at $2.13 per hour, or 50 percent of the minimum wage at that time, which was $4.25. The law did not amend the FLSA to raise the tipped employee minimum cash wage in conjunction with any future federal minimum wage increases; rather, the rate set was static and has not been changed since. Therefore, the new federal minimum wage increase does not change the $2.13 per hour minimum that must be paid in cash to tipped workers; it will only increase the “tip credit.” Of course, if the $2.13 per hour and the tips the employee earns combined do not equal the new federal minimum wage per hour, the employer must still make up that difference in cash to the employee.

State minimum wages also may come into play, as some states do not allow tip credits to be taken at all, or they may have higher cash minimums for tipped employees or may index theirs against any minimum wage increases.


Q: I am new in this job and discovered we have been retaining terminated employee personnel and related files for 20 years. What is a recommended approach for maintaining terminated employee records?

A: Every organization should have a policy to govern record retention and destruction processes for each functional area of the business. This is especially true for HR records because federal regulations now require specific methods of destruction of reports received under the Fair Credit Reporting Act and control the maintenance of confidentiality of records under the Health Insurance Portability and Accountability Act. State laws also preserve the confidentiality of the employee data that HR and payroll departments maintain for employer benefit plans and government reporting purposes, and additional new laws require employers to give notice of data breaches.

A starting point is to determine the maximum length of time that terminated employee records will be maintained. A good rule to follow is to retain these records for a period equal to your state’s statute of limitations for tort, contract and/or fraud claims. In most states, this does not exceed seven years. For some records, including I-9 forms and pre-employment records such as reference checks, credit reports and medical records, a shorter retention period will suffice.

Thus, you could establish the following retention periods for both electronic and paper-based records:

  • Personnel: Seven years.
  • Medical/Benefits: Six years.
  • I-9 forms: Not more than three years.
  • Pre-employment background checks: Two years. The only exceptions to the above would be to:
  • Retain health and safety records as required by Occupational Safety and Health Act regulations (29 CFR 1910.1020).
  • If the employer is involved in an employment-related dispute with a terminated employee that has not yet been reconciled, retain documents relating to that employee.

When eliminating terminated employee records, be sure to create a destruction log and destroy records by shredding to ensure that no confidential employee information is inadvertently released.


Q: How can we help workers deal with the serious changes our company faces?

A: Whether an employer is being acquired, conducting a reduction in force or just plain going out of business, human resource professionals play an integral role in the change process.

It is essential to communicate with employees and educate them about the change that will take place, why the change is occurring and how they will be affected. Employees often already have formed expectations and beliefs about what will occur, and management may tend to focus heavily on the business aspects of the forthcoming change.​

So here’s where HR comes in. HR’s role should be in helping management communicate to employees in a way that helps to alleviate misconceptions and fears while building trust and salvaging morale.

HR and senior management should hold employee meetings and allow employees to ask questions, and, in turn, management should provide candid answers. What the future holds can be just as uncertain for management as it is for employees, and, if that’s the case, management should let employees know that they are in the change process together and that management will share information with employees as it becomes available.

If modifications will be made to compensation or benefits, HR can facilitate these changes by presenting benchmark information in a way that employees can understand. Employees should be educated about where their employer has placed itself in the relevant market for these practices and why.

Of course, not all changes have a negative effect on employee jobs, and positive or proactive change initiatives should similarly be communicated to gain employee understanding and to meet company objectives.


Shari Lau, SPHR, GPHR, is manager of the Society for Human Resource Managements Knowledge Center. John Sweeney, SPHR, GPHR, and Regan Halvorsen, SPHR, are knowledge advisors in the center.

Web Extras

SHRM article: Is It Shredding Time Yet? (HR Magazine)

SHRM toolkit: Reporting and Record Retention

Web site: U.S. Department of Labor Occupational Safety & Health Administration


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