Editorial · December 11, 2023
State Minimum Wage Increases: A Planning Guide
State minimum wage increases take effect on January 1 in many states, so payroll teams should plan now. Some states raise the rate every year by a formula. Others follow a fixed schedule written into law. Your job is to know which rule applies where your staff work, and to change your payroll system on time.
What the federal floor is
The federal minimum wage is $7.25 an hour. It has been $7.25 since July 24, 2009, according to the U.S. Department of Labor. Congress has not changed it since. That is why the action is at the state level. States are free to set a higher rate, and many have.
The Department of Labor keeps a table of minimum wage laws by state. It was last updated on September 30, 2023. A few states have no state minimum wage law, and employers there follow the federal rate. Other states, such as Wisconsin and Indiana, list $7.25, the same as the federal rate. Your first step is to look up each state where you have employees, because the highest applicable rate is the one you must pay.
How the yearly changes work
There are three common ways a state rate goes up. Knowing which one applies tells you when to expect the new number.
- Indexing by formula. Many states adjust the rate each year by a set formula, usually tied to inflation. The Department of Labor table lists Alaska, California, Missouri, New Jersey, Ohio and Washington as states that adjust by formula.
- A fixed schedule. Michigan raises its rate each year on a set schedule written into law, as long as the prior year's unemployment rate stays at or under 8.5 percent. Florida's rate goes up by $1.00 every September 30 until it reaches $15.00.
- A different date. Not every change lands on January 1. The District of Columbia adjusts on July 1. Connecticut's rate went up to $15.00 on June 1 of this year.
Some states also have a trigger that follows the federal rate. Vermont and Connecticut, for example, tie their rules to the federal minimum if it ever rises past the state's own.
Two examples already announced
Washington State announced its new rate on September 29. The Department of Labor and Industries said the minimum wage will rise to $16.28 an hour on January 1. That is a 3.4 percent increase. The state compares the federal Consumer Price Index for Urban Wage Earners and Clerical Workers from August of one year to August of the next. The agency noted that Washington has the highest state-level minimum wage in the nation this year.
Washington also moves related numbers. The pay floor for overtime exempt employees is two times the minimum wage, so it becomes $1,302.40 a week, or $67,724.80 a year. Workers ages 14 and 15 may be paid 85 percent of the minimum, which is $13.84 an hour. Seattle, SeaTac and Tukwila set higher wages of their own.
California is the second example. Its Department of Finance told the governor in a letter that the state rate will rise from $15.50 to $16.00 an hour for all employers on January 1. The letter put the inflation adjustment at 3.5 percent, and the result rounds to $16.00. California ties its salary floor for exempt staff to the minimum wage too, at two times the rate. That works out to $66,560 a year.
A payroll checklist for the new year
Use these steps in December, while there is still time to fix problems before the first paycheck of the new year.
- List your work locations. Write down every state, and every city or county, where an employee works or lives. Local rates can be higher than the state rate.
- Look up the new rate for each place. Use the state labor agency's own announcement or poster, and keep a copy in your files.
- Find who earns near the floor. Run a report of hourly staff paid within a dollar or two of the old rate. These workers need a raise first.
- Check the salary floor for exempt staff. In some states, such as Washington and California, the minimum salary for overtime exempt workers moves with the minimum wage. A salaried employee can lose exempt status if the pay falls under the new line.
- Watch the pay ripple. If you raise a new hire to the new floor, think about staff who have been with you longer and earn only a little more. Pay that is too close can hurt morale.
- Update your system and posters. Change the rate in your payroll software before the first pay period that includes January 1. Post the new state notice where employees can read it.
Where to confirm each rate
Keep in mind that this guide is a planning aid and not legal advice. Rates and rules change, and each state publishes its own notice. The best sources are the state labor department, the Department of Labor table, and your payroll provider. If a rate in a state notice differs from a blog or a news story, follow the state notice.
The most useful habit is simple. Set a calendar reminder each September and October, when many states announce next year's rate. Then you have two or three months to adjust pay, notify staff and update your budget. Small employers that plan early rarely have to scramble.