How a $2.15 raise can add up

A proposal to raise the federal minimum wage to $10.10 per hour for untipped workers might sound attractive, especially considering base wage hasn’t kept up with inflation.

That would amount to a raise of $2.15 an hour for a person earning the current hourly minimum in Ohio, $7.95. With that increase, such a worker could take home more than their current gross pay.

At $7.95 an hour, a worker would gross $318 by putting in a 40-hour work week. Subtract payroll taxes for Social Security, Medicare and Tiffin’s city income tax, and a worker earning $404 a week would clear $367 – excluding state and federal income taxes (which might be refunded) and deductions for, say, a health plan.

But look at it from the employer’s point of view.

The employer would pay half an employee’s Social?Security and Medicare taxes, plus about 80 cents for unemployment insurance. Figure maybe $1.20 for workers’ compensation coverage. That adds up to $12.87 an hour.

An employer could try to handle payroll, but might find it better to hire a payroll processing company to take care of such chores as electronic transfers of payroll tax liabilities and preparing W2 forms, plus periodic reports demanded by the government. The cost of a payroll service should be factored into the cost of having employees, as well.

Simply put, every worker would have to produce at least $13 per hour in value to their employer just to cover the cost of employing them at the higher rate. That doesn’t factor in the cost of shop or store space, utility bills, marketing, insurance, other taxes and the like.

What the $10.10 an hour minimum wage would mean is if a job can’t produce at least $13 an hour in value – actually, much more – the job won’t exist.

But voting for the minimum wage hike won’t directly cost a member of Congress anything; however, don’t be surprised if it would cost jobs and lead to higher prices.