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Fact Checker: How would raising minimum wage impact employers?

By Lauren Maschmedt, KTVM Anchor, lmaschmedt@ktvm.com
Published On: Apr 29 2014 10:57:03 PM MDT
Updated On: Apr 30 2014 02:47:34 PM MDT
BOZEMAN, Mont. -

The Senate is expected this week to take up a long-stalled push to raise the federal minimum wage to $10.10 an hour.

States across the country are signing off on their own higher minimum wages, too.

According to CNN, since March, Maryland and Connecticut decided to raise their minimum wage to $10.10 over the next couple years. Maryland's minimum wage will rise from $7.25 to $10.10 by 2018, and Connecticut's from the current $8.70 to $10.10 by 2017.

Two weeks ago, Minnesota signed a bill that would bring one of America's lowest wages at $6.15 an hour, to one of the highest at $9.50 by 2016.

This week, Hawaii lawmakers are expected to give final approval on a boost for the first time in seven years. Minimum wage will go up by from $7.25 to $10.10 in 2018.

It's a trend President Obama is pushing for, after signing an executive order that requires federal contractors to pay their workers at least $10.10 an hour.

"Raising the minimum wage is good for business and it's good for workers; it's good for the economy," Obama said in a speech, right before signing off on the executive order in February.

Democrats side with Obama, saying it will lift working Americans out of poverty and is good for the bottom line of businesses. But Republicans say paying workers more will stress small businesses and cost jobs.

So what's the actual impact when it comes to dollars and cents?

According to Quickbooks calculations, a Montana worker making the state minimum wage of $7.90 an hour, based on a tax withholding of 2, makes a gross wage of $632 per bi-weekly paycheck. That adds up to $16,432 a year.

If minimum wage increases to $10.10, that yearly gross wage spikes to $21,008.

The employer would be responsible for covering that $4,576 a year increase, per employee.

Then, there are taxes. A business covers 7.65 percent of the employee's salary in Federal Insurance Contributions Act (FICA) taxes. Essentially, they're federal taxes to collect Social Security and Medicare.

For one employee, the business pays $1,257.04 a year in FICA taxes at Montana's current minimum wage. If the wage goes up to $10.10, those FICA taxes also go up -- to $1,607.11 a year, a $350.06 difference.

Add that in with the gross wage increase, and you've got a grand total of $4,926.06 a year the employer would pay for the higher minimum wage -- and the more employees that business has, the more that cost goes up.

Some argue that would spark employers to drive up product and consumer prices, or cut down on hours or workers.

Bottom line -- the employer would have to make up for those extra costs, one way or another.

It's important to note there are other taxes to account for -- for example federal and state unemployment.

In some cases, those rates stay constant between the two wages, so there's no increase to the employer.

In the case of Montana Unemployment Insurance taxes, there isn't a way to accurately figure out if and what the rate difference would be for a generic business because each business has its own rate based on several different factors. But, it's possible those rates would fluctuate and add to the total.

When it comes to the employee, a raise in minimum wage leaves more money in their pockets -- but just how much more?

Right now, the yearly net pay after taxes, with a with holding of 2 for a Montana minimum wage worker is $14,181.44. If the minimum wage increased to $1010, the net pay becomes $17,626.70.

That's $3,445.26 more a year that worker would see in their bank account.

Does a higher national minimum wage have a chance in Congress? The bill is unlikely to make it to the Senate floor for debate because Republicans oppose it, but states and even cities are certainly taking a look -- and in some cases, taking action.