COMMONWEALTH OF PUERTO RICO

15^th Legislature 1^st Regular Session

HOUSE OF REPRESENTATIVES

H. B. 1714

June 22, 2005

Introduced by Representatives Torres-Cruz, Aponte-Hernández, Méndez-Núñez, Ruiz-Class, Ferrer-Ríos, García-San Inocencio, Ramos-Rivera, Bonilla-Feliciano, Bulerín-Ramos, Cintrón-Rodríguez, Colberg-Toro, Colón-Ruiz, Concepción-Hernández, Crespo-Arroyo, Cruz-Rodríguez, del Valle-Colón, Fernández-Rodríguez, García-Cabán, García-Colón, González-Colón, González-González, González-Rodríguez, Hernández-López, Jiménez-Negrón, Márquez-García, Méndez-Silva, Molina-Rodríguez, Navarro-Suárez, Ortiz-Quiñones, Peña-Rosa, Pérez-Ortiz, Pérez-Otero, Pérez-Román, Ramírez-Rivera, Ramos-Peña, Reyes-Oppenheimer, Rivera-Aquino, Rivera-Guerra, Rivera-Ortega, Rivera-Ramírez, Rivera-Ruiz de Porras, Rodríguez de Corujo, Rodríguez-González, Rosario-Hernández, Silva-Delgado, Torres-Calderón, Varela-Fernández, and Vizcarrondo-Irizarry.

Referred to the Committee on Labor and Labor Relations

AN ACT

To provide the public policy on the minimum wage of workers in Puerto Rico by amending Sections 2, 3, 4, and 8 of Act No. 180 of July 20,* 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act,” and by repealing Act No. 320 of September 2, 2000, and to increase the minimum wage in effect.

Statement of Motives

Section 16 of the Bill of Rights (Article II) of the Constitution of the Commonwealth of Puerto Rico provides that “[T]he right of every employee … is recognized … to a reasonable minimum salary…”

The Supreme Court has stated that “[T]he fundamental purpose of this Section is to protect the health, safety, and life of the great laboring mass.” Municipality of Guaynabo v. Superior Court, 97 P.R.R. 532 (1969).

Section 1 of Act No. 320 of September 2, 2000, states that “The Secretary of Labor and Human Resources is hereby directed to fix the minimum wage to be paid to every public employee, except municipal employees, in an amount equal to the Federal minimum wage, or five dollars and eighty cents ($5.80) per hour, the greater of the two.”

This measure has the purpose of setting forth the public policy on the minimum wage of workers in Puerto Rico by amending Sections 2, 3, 4 and 8 of Act No. 180 of July 20, 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act,” and by repealing Act No. 320 of September 2, 2000.

The Federal minimum wage establishes the minimum standard to be met for workers in the states and territories covered by the Fair Labor Standards Act, approved by the Congress of the United States of America on June 25, 1938, as amended.

The Federal law does not preclude the adoption of local standards regarding minimum wage that are more beneficial for workers. In spite of this, in 1998 in Puerto Rico it was established by law that the local minimum wage would be equal only to seventy percent (70%) of the Federal minimum wage or even less, in the case of certain enterprises not covered by the Federal law.

The following table shows the evolution of the Federal minimum wage:

Minimum hourly wage of workers

Effective Date 1938 Act 1961 Amendments 1966 and Subsequent Amendments

Nonfarm Farm

Oct 24, 1938 $0.25

Oct 24, 1939 $0.30

Oct 24, 1945 $0.40

Jan 25, 1950 $0.75

Mar 1, 1956 $1.00

Sep 3, 1961 $1.15 $1.00

Sep 3, 1963 $1.25

Sep 3, 1964 $1.15

Sep 3, 1965 $1.25

Feb 1, 1967 $1.40 $1.40 $1.00 $1.00

Feb 1, 1968 $1.60 $1.60 $1.15 $1.15

Feb 1, 1969 $1.30 $1.30

Feb 1, 1970 $1.45

Feb 1, 1971 $1.60

May 1, 1974 $2.00 $2.00 $1.90 $1.60

Jan 1, 1975 $2.10 $2.10 $2.00 $1.80

Jan 1, 1976 $2.30 $2.30 $2.20 $2.00

Jan 1, 1977 $2.30 $2.20

Jan 1, 1978 $2.65 for all covered, nonexempt workers

Jan 1, 1979 $2.90 for all covered, nonexempt workers

Jan 1, 1980 $3.10 for all covered, nonexempt workers

Jan 1, 1981 $3.35 for all covered, nonexempt workers

Apr 1, 1990 $3.80 for all covered, nonexempt workers

Apr 1, 1991 $4.25 for all covered, nonexempt workers

Oct 1, 1996 $4.75 for all covered, nonexempt workers

Sep 1, 1997 $5.15 for all covered, nonexempt workers

Source: US Department of Labor

As can be noted, the Federal minimum wage has stopped evolving at a rate that would allow workers who are covered by it to live above the poverty level. For the last four rounds of increases, the Federal minimum wage (FMW) has experienced a progressive deceleration in its rate of growth.

In 1979, the FMW was increased from $2.65 to $2.90 per hour, a 25-cent increase in a single year. Since then, the minimum wage has been revised in the following manner:

- in 1981, to $3.35 (.45 increase in two years) for 22.5 cents per year;

- in 1991, to $4.25 (.90 increase in 10 years) for 9 cents per year;

- in 1997, to $5.15 (.90 increase in 14 years) for 6.4 cents per year.

Since 1997, the Federal minimum wage has not been increased. If the wages were to be increased at the same rate of the last increase, the new minimum wage would be of approximately $5.75 an hour in 2006.

In view of the fact that since 1997, Congress has been unable to reach an agreement regarding the Federal minimum wage, it is necessary for the Legislature of Puerto Rico to revise local legislation on minimum wage, as other Legislatures have done, in order to do justice to workers in view of the constant erosion of the purchasing power of their wages.

According to the US Department of Labor and to newspaper clippings, the following states fix state minimum wages that are higher than the Federal minimum wage:

1. Alaska ($7.15);

2. California ($6.75; $8.50 in San Francisco with automatic increases for inflation);

3. Connecticut ($7.10);

4. Delaware ($6.15);

5. District of Columbia ($6.60 and $7.00 effective in 2006 – automatically one dollar higher than the FMW);

6. Florida ($6.15 with automatic increases for inflation);

7. Hawaii ($6.25);

8. Illinois ($6.50);

9. Maine ($6.35);

10. Maryland ($6.15 pending the Governor’s signature);

11. Massachusetts ($6.75)

12. Minnesota ($6.15)

13. Nevada ($5.25 with a new increase to be considered in 2006);

14. New Jersey ($6.15 in October 2005 and $7.15 in October 2006);

15. New York ($6.00 and $6.75 effective in 2006);

16. Oregon ($7.25 with automatic increases for inflation);

17. Rhode Island ($6.75)

18. Vermont ($7.00)

19. Washington ($7.35 with automatic increases for inflation);

20. Wisconsin ($6.50)

The US Senate has defeated a proposal from the Democrats to increase the Federal minimum wage to $7.25 in the next two (2) years and a Republican alternative to increase the same to $6.25 in the next eighteen (18) months.

The State legislative action means that forty-three percent (43%) of U.S. citizens shall reside in jurisdictions where the state minimum wage is more than six dollars ($6) an hour as of this Fall.

Due to our condition as an Island, the increase in the minimum wage in the economy of Puerto Rico would have the net effect of redistributing the wealth, which would allow the less advantaged classes to move on from the poverty level through employment. The adoption of a policy of automatic increases of the minimum wage would also make it unnecessary to revise the public policy adopted for a relatively extensive period of time.

The Federal guidelines provide that a family constituted by four (4) members should earn at least $18,850 in order for the same to be considered to be above the poverty level. With the present $5.15 hourly Federal minimum wage, a worker who earns the hourly minimum and works full-time has a gross income of approximately $10,300 annually, which means that said worker earns $8,500 less than the poverty index.

The purchasing power of the $5.15 hourly Federal minimum wage is reduced to less than $4.50 in 2005 when adjusted to the inflation calculated in the United States (to be used as reference due to the unreliability of local indexes).

In order for a family constituted by four (4) members to be able to move on from the poverty level, the minimum wage would have to be fixed at $7.15 hourly, at the least, so that the income may reach $18,850 as established by Federal guidelines. This measure would establish the following State minimum wage schedules in Puerto Rico:

Year M.W. per H. Net Increase Increase in Percent

2005 $5.15 (current)

2006 $5.40 0.25-base 4.85%

2007 $5.60 0.20 3.70%

2008 $5.80 0.20 3.57%

2009 $6.00 0.20 3.45%

2010 $6.20 0.20 3.33%

2011 $6.40 0.20 3.23%

2012 $6.60 0.20 3.13%

2013 $6.80 0.20 3.03%

2014 $7.00 0.20 2.94%

2015 $7.20 0.20 2.86%

Total in an eighteen (18)-year period (1997-2015): $2.05 (39.8% =2.21% annual average)

Total in a ten (10)-year period (2005-2015): $2.05 (39.8% = 4% annual average)

2016 $7.40 0.20 2.78%

2017 $7.60 0.20 2.70%

2018 $7.80 0.20 2.63%

2019 $8.00 0.20 2.56%

2020 $8.25 0.25 3.13%

Total in the new five (5)-year period (2015-20): $1.05 (14.58% = 2.92% annual average)

2021 $8.50 0.25 3.03%

2022 $8.75 0.25 2.94%

2023 $9.00 0.25 2.86%

2024 $9.25 0.25 2.78%

2025 $9.50 0.25 2.70%

Total in the new five (5)- year period (2020-25): $1.25 (15.15% = 3.03% annual average)

2026 $9.75 0.25 2.63%

2027 $10.00 0.25 2.56%

2028 $10.25 0.25 2.50%

2029 $10.50 0.25 2.44%

2030 $10.75 0.25 2.38%

Total in the new five (5)-year period (2025-30): $1.25 (13.16% = 2.63% annual average)

Total in the new ten (10)-year period (2020-30): $2.50 (30.30% = 3.03% annual average)

As noted, under our proposal the minimum wage would not reach the $7.15 level until after ten (10) years, when it would have once again lost its purchasing power. The annual average increase is similar to the inflation rate, and also compensates for the nine (9) years in which it has not been increased (from 1997 to 2006).

Hence the importance of adopting a formula that allows us to address the need to increase the minimum wage without provoking inflationary pressures and excessive government spending in payroll (taking into account that the government is the main employer of the Island with approximately one quarter of a million employees -250,000- and that, further, it subsidizes agricultural jobs).

Our proposal is established as a meeting point between the increases that would be necessary to reestablish the purchasing power of the Federal minimum wage and the historic evolution thereof during the past three (3) decades.

Through this Act, a public policy and a uniform minimum wage is established for employees in Puerto Rico, including government employees. The only exceptions to be made shall be those applicable to administrators, executives, and professionals, agricultural workers, and workers of those particular industries or businesses or municipal governments or consortiums for which the Secretary of the Department of Labor and Human Resources determines that the application of the minimum wage shall substantially affect their jobs.

BE IT ENACTED BY THE LEGISLATURE OF PUERTO RICO:

Section 1.- Section 2 of Act No. 180 of July 20, 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act,” is hereby amended to read as follows:

“The Federal minimum wage fixed by the Fair Labor Standards Act approved by the Congress of the United States of America on June 25, 1938, as it has subsequently been amended, shall automatically apply to the workers in Puerto Rico covered by the Federal Act, provided it is higher than the State minimum wage established in Section 3 of this Act.

The Federal minimum wage, if higher than the State minimum wage established in Section 3 of this Act, shall also apply to workers not covered by the Federal Act, with the exception of those agricultural workers and workers of those particular industries or businesses or municipal governments or consortiums for which the Secretary of the Department of Labor and Human Resources determines that the application of the minimum wage shall substantially affect their jobs.

Upon applying the Federal or State minimum wage, the provisions in Federal legislation and regulations shall be recognized with regard to how the minimum wage shall be paid, what working hours are, which employees and jobs are exempted from minimum wages, and to establish the minimum hours of work or maximum work week.

Section 2.- Section 3 of Act No. 180 of July 20, 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act” is hereby amended to read as follows:

[Those enterprises or activities that do not meet the criteria of the Federal Fair Labor Standards Act, and are therefore exempted from the Federal minimum wage, shall pay a minimum wage equivalent to seventy percent (70%) of the prevailing minimum wage. Every other phase of Federal legislation and regulations regarding how the minimum wage is to be paid, working hours, which employees and occupations are exempted from the Federal minimum wage, and what a working day or week is, are applicable. Provided, that the Secretary of Labor and Human Resources shall have the authority to reduce the prevailing percent if he/she shows that its implementation will substantially affect the employees in the enterprises covered by this Section.]

The state minimum wage in Puerto Rico to be applied to workers whether covered or not by the Federal Act shall be that which is the higher of the following two (2):

1. the basic hourly state minimum wage, which shall be five dollars and forty cents ($5.40) as of July 1, 2006, increased by an additional twenty cents ($0.20) annually as of July 1, until the year 2020, when it shall increase at a rate of twenty-five cents ($0.25) annually.

2. The Federal minimum wage fixed by the Fair Labor Standards Act, approved by the Congress of the United States of America on June 25, 1938, as it has been or were to be subsequently amended.

The agricultural workers and workers of those particular industries or businesses or municipal governments or consortiums for which the Secretary of the Department of Labor and Human Resources determines that the application of the State minimum wage shall substantially affect their jobs, may be excluded from the State minimum wage provided in this Section.”

Section 2.- Subsection (i) of Section 4 of Act No. 180 of July 20, 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act” is hereby amended to read as follows:

“(i) State Minimum Wage comprises the minimum wages established pursuant to Section 3 of this Act [this Act for workers of enterprises or for activities not covered by the Federal Fair Labor Standards Act].”

Section 4.- Section 8 of Act No. 180 of July 20, 1998, as amended, known as the “Puerto Rico Minimum Wage, Vacations and Sick Leave Act” is hereby amended to read as follows:

“[(a) The provisions of this Act shall not apply to:

(1) persons employed in domestic service in a family residence, except chauffeurs;

(2) persons employed by the Government of the United States of America, the Government of Puerto Rico, except by those agencies or instrumentalities thereof that operate as private businesses or enterprises, and;

(3) persons employed by the Municipal Governments.

(b)] The provisions of this Act shall not apply to ‘Administrators,’ ‘Executives,’ and ‘Professionals,’ as said terms are defined by Regulation Number 13 of the Minimum Wage Board, or as subsequently amended by the Secretary of Labor and Human Resources under the powers granted by this Act.”

Section 5.- Act No. 320 of September 2, 2000, is hereby repealed effective July 1, 2008.

Section 6.- Any provision of law or regulation that contravenes the provisions of this Act is hereby repealed to the extent of said contravention. Should any Section, part, paragraph, subsection, standard or provision of this Act be repealed or amended or declared null or unconstitutional, the remaining provisions and parts shall remain in effect and applicable to the extent possible. If their application to any person or circumstance is declared null, its nullity shall not affect the other provisions of law that could remain in effect without resorting to the annulled provision.

Section 7.- This Act shall take effect immediately after its approval.

* TRANSLATOR’S NOTE: should read July 27, 1998