Wage Costs Rise in Many States in 2021

While the $7.25 federal minimum wage has been in place since 2009, most states and many municipalities and counties have upped their minimums since then. Of those, 25 have scheduled increases in 2021—most of which take effect on January 1.

Meanwhile, longstanding efforts in Congress to raise the federal minimum, thus far unsuccessful, are expected to get a new push by the incoming Biden administration. Before the November 3 election, President-Elect Biden expressed support for a political movement to require a phased increase in the federal minimum to $15.00. That position was also part of the Democrat Party’s election platform.

However, Biden hasn’t been vocal about the topic. Prospects for a change in the federal standard hinge on whether Democrats take control of the U.S. Senate following the scheduled January 5 run-off election for both open Senate seats in Georgia. Even so, one state—Florida—adopted a ballot initiative on November 3 to move its hourly minimum to $15.00. The first move in that direction will take Florida’s minimum from the current $8.56 to $10.00 on September 30, 2021, and in $1.00 increments to $15.00 over the following five years.

A $15 Hourly Minimum Wage?

Florida joined New York (though only the downstate region), California, Maryland, Massachusetts, New Jersey, Illinois and Connecticut in the group of states that have committed to reaching a $15.00 minimum over the next few years. Several high-cost large cities—including Washington D.C., San Francisco, New York, Seattle and San Jose—have $15.00 (or higher, in cases of Seattle and San Jose) minimums.

What about your state? Here’s a list of the 24 states with minimum wages already higher than the federal minimum, with increases kicking in next year (though not all on January 1, and some vary by the size of the company):

1. Alaska $10.19 to $10.34
2. Arizona $12.00 to $12.15
3. Arkansas $10.00 to $11.00
4. California $13.00 to $14.00*
5. Colorado $12.00 to $12.32
6. Connecticut $12.00 to $13.00* on August 1, 2021
7. Florida $8.56 to $10.00* on September 30, 2021
8. Illinois $10.00 to $11.00*
9. Maine $12.00 to $12.15
10. Maryland $11.00 to $11.75*
11. Massachusetts $12.75 to $13.50*
12. Michigan $9.65 to $9.87
13. Minnesota $10.00 to $10.08
14. Missouri $9.45 to $10.30
15. Montana $8.65 to $8.75
16. Nevada $9.00 to $9.75 on July 1, 2021
17. New Jersey $11.00 to $12.00*
18. New Mexico $9.00 to $10.50
19. New York $11.80 to $12.50 on December 31, 2020*
20. Ohio $8.70 to $8.80
21. Oregon $12.00 to $12.75 on July 1, 2021
22. South Dakota $9.30 to $9.45
23. Vermont $10.96 to $11.75
24. Virginia $7.25 to $9.50 on May 1, 2021
25. Washington $13.50 to $13.69

*States with laws that will gradually push the minimum hourly wage to $15.00

Standing Pat

The following four states have hourly minimum wage rates exceeding the federal minimum but with no scheduled increases in 2021:

1. Delaware $9.25
2. Nebraska $9.00
3. Rhode Island $11.50
4. West Virginia $8.75

Here are the other states, where the minimum wage is linked to the $7.25 federal rate and no changes have been announced for 2021:

1. Alabama
2. Georgia*
3. Idaho
4. Indiana
5. Iowa
6. Kansas
7. Kentucky
8. Louisiana
9. Mississippi
10. New Hampshire
11. North Carolina
12. North Dakota
13. Oklahoma
14. Pennsylvania
15. South Carolina
16. Tennessee
17. Texas
18. Utah
19. Wisconsin
20. Wyoming*

*At $5.15, the minimum wage rates for Georgia and Wyoming are below the $7.25 federal rate but superseded by the federal rate.

Numbers in Perspective

According to the federal Bureau of Labor Statistics, only about 2% of hourly workers had wages at or below the $7.25 federal hourly minimum in 2019. (Nearly two-thirds of those 2 million were paid below the minimum wage.) A jump in the federal minimum wage to $15.00, however improbable, would boost the incomes of 20% of hourly workers, according to a Congressional Budget Office study.

How could so many workers have a basic wage below the federal minimum? Under the Fair Labor Standards Act, the hourly minimum wage is lower—$2.13, specifically—for employees who receive a significant amount of tip income. However, when the combined basic wage and tips of employees come in less than the $7.25 hourly minimum, employers need to make up the difference.

Some states with minimum rates higher than the federal rate operate on the same principle. That means when the state raises its basic minimum rate, employers with tipped employees may be impacted as well if the combined fixed and tip income of employees falls below the state’s new higher basic minimum.

The following states take a different approach by setting the minimum tipped wage (that is, the fixed wage excluding tips) at the same level as their standard minimum wage: Alaska, Minnesota, Montana, Nevada, Oregon and Washington. Also, several states set smaller minimum wages for tipped employees of smaller enterprises.

Food for Thought

Keep in mind that any increase in the minimum wage rate could force some employers to raise the wages of employees whose earnings are somewhat higher above the minimum wage. Why? To preserve the original pay gradation pattern. However, many employers operating on tight margins would find that impossible to do after absorbing the cost of a minimum wage hike.