Soaring inflation rates and stagnant federal minimum wage requirements have led many states to take action and make changes. In an effort to meet the rising Consumer Price Index, there will be a minimum wage increase for many states in 2023.
Whether you work in HR or are a small business owner, paying employees is surely one of the most critical (and stressful) responsibilities on your plate. After all, if your team isn’t paid correctly, you risk violating the Fair Labor Standards Act (FLSA), and you might even have to pay IRS penalties.
However, staying on top of yearly minimum wage increases and ensuring state and federal compliance can be overwhelming, to say the least.
In this article, we’ll go over some of the changes to plan for in 2023 so that you can make sure you stay up to speed while writing employee paychecks. Then, we’ll break down the latest minimum wage increases by state so that you can have a clear point of reference. Last but not least, we’ll discuss key steps that will help you to prepare for the upcoming changes.
Table of Contents
Table of Contents
Minimum wage overview
According to the International Labour Organization, “The purpose of minimum wages is to protect workers against unduly low pay.” Like other wage and labor laws, the minimum wage was created to minimize inequality and provide workers with fair earnings.
In the United States, different wage laws apply at the federal, state, and local levels. Currently, the federal minimum wage is set at $7.25 per hour. This amount was established by the U.S. Department of Labor (DOL) under the Fair Labor Standards Act (FLSA). Aside from minimum wage requirements, FLSA also details federal laws regarding overtime pay, recordkeeping, and youth labor standards.
Federal vs state vs local minimum wage
The federal minimum wage of $7.25 per hour was put into place in 2009 and has gone unchanged since. However, the majority of wage and hour laws across many states and local jurisdictions are different from the federal amount and change on a regular base. Here we’ll go through the specifics and point out some key differences between federal vs state vs local minimum wage.
Federal minimum wage
According to federal law, it is illegal for employers subject to FLSA to pay employees less than $7.25 per hour for untipped workers and $2.15 per hour for tipped workers, across the United States.
If an employer’s state minimum wage is higher than this amount, the employer must pay the higher of the two. For example, if an employee works in Florida, which has a state minimum wage of $13.00 per hour, you would disregard the Federal minimum wage and pay employees the determined state minimum.
If a state’s minimum wage is lower than the federal minimum wage, or if there is no set state minimum wage, it would only be legally acceptable to pay employees less than $7.25 if they are exempt from FLSA minimum wage laws. To find out which forms of labor are exempt from federal minimum wage and overtime laws, consult the U.S. Department of Labor website.
State minimum wage
Apart from federal wage jurisdiction, the majority of states have minimum wage and labor laws that employers need to abide by. There are many states whose minimum wages increase on an annual basis, and usually, the increments take place at the beginning (January 1st) or halfway (July 1st) through the year. This year, the minimum wage increase in 2023 will affect 27 states.
If your team is remote, you must pay employees based on the wages of their residence states, regardless of your business’s location.
Local minimum wage
Additionally, employers should keep in mind that local jurisdiction also varies within certain districts and municipalities. If an employee is working from a locality with an established “living wage” regulation that is higher than the state and federal minimum, you must pay them according to local jurisdiction, rather than the regulated state wage. The best way to ensure this is by checking local department of commerce websites. Pay differences by industry might also play a factor in established local minimum wages.
Perhaps you’d like to keep track of legal changes and deadlines in the coming year but don’t know where to get started. Keeping a 2023 HR compliance calendar will help you to plan ahead and stay on top of legal changes and make sure you don’t make any mistakes while managing your team’s operations.
Using a 2023 HR compliance calendar template, you can keep track of important dates and deadlines and make updates based on your team’s local and state laws. That way, keeping track of deadlines and staying on top of compliance in the coming year will be less daunting and more straightforward.
Minimum wage increases in 2023 and beyond
In 2023, a total of 27 states and over 40 local jurisdictions will see a minimum wage increase over the course of the year. Three of them will join Washington D.C. and California by increasing their minimum wage requirement to over $15 per hour.
Over the years, there has been a steady minimum wage increase state by state. Some states, like Hawaii for example, have planned incremental growth. Every two years, the Hawaiian minimum wage increases by $2.00 per hour. In 2022, the minimum wage increased from $10.00 to $12.00 per hour. It is projected to go up again in 2024 from $12.00 to $14.00 per hour.
While the majority of the changes will take place on December 31st, 2022, or January 1st, 2023, there are a few that are planning to increase their minimum wages later on in the year. Here is an alphabetical outline of the 2023 increases in the minimum wage by state:
Increase on January 1st, 2023
- Delaware- $10.50 to $11.75
- Illinois- $12.00 to $13.00
- Maryland- $12.50 to $13.25
- Massachusetts- $14.25 to $15.00
- Michigan- $9.87 to $10.10
- Missouri- $11.15 to $12.00
- Nebraska- $9.00 to $10.50
- New Jersey- $13.00 to $14.13
- New Mexico- $11.50 to $12.00
- NYC & New York State- $13.20 to $14.20 on December 31st,2022 ($15.00 in NYC and surrounding areas)
- Rhode Island- $12.25 to $13.00
- Virginia- $11.00 to $12.00
Increase later in 2023
- Connecticut (July 1st)- $14.00 to $15.00
- Florida (September 30th)- $11.00 to $12.00
- Nevada (July 1st)- $9.50 to $10.25 (health care coverage); $10.50 to $11.25 (no health care coverage)
- Oregon (July 1st)- $13.50
Current minimum wage by state
Although 27 states will increase their minimum wages in 2023, there are currently 20 states with a minimum wage that match the basic Federal minimum wage of $7.25 per hour. Here is an overview of minimum wage by state according to the U.S. Department of Labor.
The basic minimum wage for untipped workers
|State||Minimum hourly wage**|
|Alabama||No state minimum wage/$7.25|
|Arkansas||$11.00 for businesses with more than 4 employees|
|Connecticut||$14.00 ($15.00 on June 1st)|
|Florida||$11.00 ($12.00 on September 30th)|
|Georgia||$5.15 for businesses with more than 6 employees/$7.25|
|Illinois||$13.00 for businesses with more than 4 employees|
|Indiana||$7.25 for businesses with more than 2 employees|
|Louisiana||No state minimum wage/$7.25|
|Maryland||$13.25 for employees over 18|
|Michigan||$10.10 for employees over 17|
|Minnesota||$10.59 for businesses with more than $500,000 in annual revenue/$8.63 for businesses with less than $500,000|
|Missouri||$12.00 for non-federal businesses with more than $500,000 in gross annual sales|
|Mississippi||No state minimum wage/$7.25|
|Montana||$9.95 for businesses with gross annual sales greater than $110,000/$4.00 for businesses with less than $110,000|
|Nebraska||$10.50 for businesses with 4 or more employees|
|New Jersey||$14.13/11.90 for seasonal/businesses with less than 6 employees|
|Nevada||$10.50 without health insurance/$9.50 with health insurance ($11.25/10.25 on July 1st)|
|New York||$14.20/$15.00 Long Island, Westchester, & NYC|
|Ohio||$10.10 for businesses with annual gross receipts of $372,000 or more/ $7.25 for under $372,000|
|Oklahoma||$7.25 for businesses with more than 10 employees or more than $100,000 in gross annual sales/$2.00|
|South Carolina||No state minimum wage/$7.25|
|Tennessee||No state minimum wage/$7.25|
|Virginia||$12.00 for businesses with more than 4 employees|
|Vermont||$13.18 for businesses with more than 2 employees|
|West Virginia||$8.75 for businesses with more than 6 employees|
|Wyoming||$5.15/ $7.25 under FLSA|
|District of Columbia||$16.50|
Basic minimum wage in major US territories
|Commonwealth of the Northern Mariana Islands||$7.25|
|Puerto Rico||$8.50 for employees covered by FLSA|
**Minimum wage laws differ for tipped and untipped employees. You can find an up-to-date record of minimum wages for tipped and untipped employees here.
How employers can prepare
Ensuring that your team receives the right payment can be tricky, especially if you have remote employees scattered across the country. To finish off, we’ll go through a few HR tips to help you navigate payroll changes and policies for your team:
- If your company’s team extends across state lines, you have two options: (1) You can investigate and comply with minimum wage regulations within each state, or (2) You can find out which state has the highest minimum wage and opt to pay employees the higher rate across the board.
- Before paying your employees, it’s best to send out an official letter to notify employees about the upcoming salary changes set to take place and to verify their compliance with these changes.
- Paper payroll calculation can be a bit tricky to manage payment changes and ensure compliance, and it is much better to opt for payroll software to help you calculate salaries and budgets correctly. Using payroll software, you can ensure payslip accuracy, calculate overtime pay and deductions, and increase your overall fiscal compliance.
When looking for tools to help you with the minimum wage increase and employee payroll, you’ll quickly find that there are many different types of options available. The best and most straightforward way to stay compliant is to use an all-in-one payroll solution that can help you keep track of employee timesheets, time off, onboarding, and much more. If you’d like to learn more, give Factorial HR a try here.