Report Title:

Minimum Wages; Annual Adjustment


Provides for an annual adjustment to the state minimum wage based upon Hawaii cost-of-living allowance increases, beginning January 1, 2005. (SD1)


S.B. NO.



S.D. 1






relating to minimum wages.



SECTION 1. The legislature finds that the minimum hourly wage paid to an employee should yield a basic "living wage" to a person working 2,080 hours per year at the rate of forty hours per week for fifty-two weeks. This reflects the spirit and the intent of the original minimum wage effected by the Federal Fair Labor Standards Act of 1938. The original minimum wage standard, which expressed this spirit and intent, was that the minimum hourly wage should be one-half the national average hourly wage paid to non-farm, non-supervisory employees.

A weakness of this nationally-based standard is that in areas of the country, such as Hawaii, where the cost-of-living differential is substantial, the federal minimum wage falls far below the spirit and intent of a "living wage" minimum wage. For instance, in the 1994-1996 period, the cost-of-living differential for Hawaii from the national average was variously estimated by reputable sources to be between fifteen and twenty-five per cent. In fact, this differential is commonly referred to as the "paradise tax" and the "price of paradise."

Accordingly, current law provides for a state minimum hourly wage that is higher than the federal minimum hourly wage. The federal minimum wage amount is $5.15 per hour, while Hawaii's minimum wage amount is $6.25 per hour.

However, a problem has developed over the years, both at the federal level and here in Hawaii, with keeping the minimum wage current. Thus, the legislature further finds that an effective remedy for keeping the state minimum wage current is to provide for an automatic annual cost-of-living adjustment. Raising the minimum wage in response to cost-of-living inflation helps all of Hawaii's employees keep up with the effects of price and rent escalation. The provision of an automatic annual adjustment will ensure that the minimum wage amount is kept current and does not go unchecked for long periods of time. A gradual increase can curb the necessity of large increases and stem the effects of the nine-year delay of the last minimum wage adjustment. It is not the intent of the legislature to allow the minimum wage amount to decrease as a result of cost-of-living deflation, but instead to provide for the amount to at least remain at its current level.

The legislature further finds that raising the minimum wage to a "living wage" rewards work, reduces poverty and its many negative social effects, enhances state revenue, and boosts the general economy of Hawaii.

The purpose of this Act is to provide for the adjustment of the state minimum wage beginning on January 1, 2005, to provide for cost-of-living adjustments; provided that the minimum wage amount will not decrease as a result of an automatic adjustment.

SECTION 2. Section 387-2, Hawaii Revised Statutes, is amended to read as follows:

"387-2 Minimum wages. (a) Except as provided in section 387-9 and [this section,] subsection (b), every employer shall pay to each employee employed by the employer wages at the rate of not less than[:

(1) $5.25 per hour beginning January 1, 1993;

(2) $5.75 per hour beginning January 1, 2002;

(3)] $6.25 per hour beginning January 1, 2003. Effective beginning January 1, 2005, and each January 1 thereafter, in order to accomplish a basic livable wage, the minimum hourly wage shall be adjusted for any cost-of-living inflation as follows:

(1) The annual average percentage change in the Honolulu consumer price index for all urban consumers for the preceding year shall be added to one hundred per cent; and

(2) Multiplied by the state minimum wage of the preceding year;

in order to set the cost-of-living adjustment for the new annual minimum wage; provided that in the event of a negative annual average percentage change, minimum wage shall remain at the same rate as the preceding year.

The annual adjustment to the state minimum wage shall be completed no later than October 15 of the preceding year for the following year by the director.

(b) The hourly wage of a tipped employee may be deemed to be increased on account of tips if the employee is paid not less than 25 cents below the applicable minimum wage by the employee's employer and the combined amount the employee receives from the employee's employer and in tips is at least 50 cents more than the applicable minimum wage."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.