Salon Owners & The Federal Minimum Wage Hike: How Will It Affect You?

The first minimum wage increase in 10 years took effect July 24, 2007, which the Economic Policy Institute (EPI) says will directly affect 5.6 million employees while 7.4 million low-wage workers will experience a spillover effect. That’s 10 percent of the nation’s work force—so it’s especially important that salon owners and operators who employ hourly workers understand the wage hike and consider how it will impact their business.

The Fair Minimum Wage Act of 2007 is a series of three increases that ultimately will push base pay to $7.25 an hour over a two-year period. This past summer’s increase was the first in that series and raised pay from $5.15 to $5.85 an hour.

The federal minimum wage, which was first enacted in 1938, hasn’t seen an increase since 1997 despite other rising costs across the nation—in fact, minimum wage was at a 52-year low when adjusted for inflation prior to July’s increase.

However, 33 states currently have minimum wage laws establishing higher wage floors than the federal $5.15 level. Several of these states are in the midst of phased-in minimum wage increases of their own, and some index their wages to inflation. The federal phased-in hike will in some cases surpass state minimum wages and in some cases not.

By September 2009, the number of states with minimum wages above the federal level will be down to 12, with several states tied with the federal rate of $7.25.

So what does this mean for business owners? On the negative side, the wage hike may force employers who pay many of these low-wage workers to raise the prices of the products, cut back on employees’ hours or let some workers go. According to the National Restaurant Association, the last minimum-wage increase cost the restaurant industry more than 146,000 jobs, and restaurant owners put off plans to hire an additional 106,000 employees.

On the other hand, others say the effect on the economy will be negligible. A PNC Economic Outlook survey done in April reported that three out of four small- and middle-market business owners said raising the minimum wage would have little or no impact on their businesses.

Ultimately, the federal minimum wage hike can affect all business owners who hire hourly employees—but to what extent is unknown. A salon owner’s best bet, then, is to maintain awareness of the minimum wage increases and evaluate the effect on their individual business.