By Catherine Gordon, Toolkit Staff Writer

The Fair Minimum Wage Act of 2007 raised the federal minimum wage rate in three incremental steps: $5.85 per hour effective July 24, 2007, $6.55 per hour effective July 24, 2008; and finally, $7.25 per hour effective July 24, 2009, which is the current federal minimum wage rate. However, several states have set their hourlyminimum wage ratesabove the federal minimum wage, and if you are subject to both federal and state minimum wage and hour laws, you must abide by the higher rate.

The state of Colorado currently has a state minimum wage of $7.28 per hour, which is slightly higher than the federal minimum wage rate. Colorado's minimum wage rate, like several other state minimum wage rates, is tied to inflation and the cost of living. What this means is that the minimum wage rate would typically rise each year or at least stay the same. However, unique economic conditions have caused the state of Colorado to propose a drop in the minimum wage rate as of January 1, 2010. Colorado's state law allows the rate to drop if the cost of living falls, which is exactly what has occurred. The proposed lowered minimum wage is $7.24 per hour, which means that, as an employer in Colorado, you must still pay the federal minimum wage of $7.25 per hour if you are subject to both federal and state laws in keeping with the rule that you must abide by the higher rate.

Of course, this doesn't mean that Colorado employers should lower the hourly minimum wage rate they pay their employees. Whether you are an employer in Colorado or in another state that has the potential of being affected by this sort of change, it's important to do a cost-benefit analysis that can't strictly be measured in monetary terms. To use Colorado as an example, an employer may foresee a payroll savings amount that can add up depending on how many employees are on the payroll and how many are paid a minimum wage. As an employer, you may feel your aggregate gain from cutting three cents an hour from a group of employers is worth the relatively small amount it represents for each individual employee. While this may in fact, be true, in employer-employee relationships not everything is measurable in strictly monetary terms.

The original intent behind the raising of the minimum wage rate, especially on a state level and when it is tied to inflation, is that lower-paid workers were earning wages that were not enough to sustain them when the cost of living kept increasing - their wages were not keeping pace with inflation. During tough economic times as an employer you no doubt have had to do your share of cost-cutting, at least to some extent. One of these cost-cutting measures may have included trimming the amount of people you employ. This may have left fewer workers to do more work. Raises may have been frozen or eliminated as well, along with other perks, big and small. You need your employees to want to do the best work possible and be glad they are still employed despite the challenges economic times have presented. Morale and loyalty are valuable and it's tough to make the argument that minimum wage workers will see the logic of cutting their pay no matter how small the amount. The value to your business of employees who continue working for you also must take into account the possibility of losing employees and having to incur the cost of hiring and training new ones.

Whether the change in Colorado signals changes to come for other states as well remains to be seen. Not every state's law that has an hourly minimum wage rate tied to the rate of inflation contains a provision that instructs that the minimum wage be lowered if the cost of living goes down. In any case, when contemplating negative changes to employee pay rates, employers would do well to heed the old adage "penny wise and pound foolish" - any small economic gain could end up being quite costly.