Millions of workers to receive another mandatory pay increases on January 1

Remember last year when 25 U.S. states and 38 cities and counties raised the minimum wage?

Well, it’s happening again, and it’s not déjà vu. Beginning January 1, 2025, 21 states will increase their minimum wage again. While the federal minimum wage has remained stuck at $7.25 since 2009, lawmakers across the country have been taking matters into their own hands to increase local minimum wages to account for the increased cost of living.

From Alaska to Washington State, minimum wage increases at the state level will put pressure on organizations’ payroll budgets, with rises in the minimum wage for some states at $1 or more this upcoming year (we see you Nebraska).

While some of the minimum wage increases are more substantial than others, organizations in the above states need to follow their local laws when it comes to overtime pay for non-exempt employees. Remember, the calculation for overtime pay is an employee’s hourly rate multiplied by 1.5.  

Additionally, a rise in the minimum wage impacts pay transparency as employees now have a new baseline for what they should be paid – at minimum. And trust us when we say that most workers are looking for more than a state-mandated minimum.  

Organizations must also address pay equity, as workers hired at the new, higher minimum wage may have pay similar to current employees with more experience (watch out for that pay compression!).

What about remote workers? 

You may be reading this article and noticing that your state is not listed on the chart above. Nothing to worry about, right? Wrong. Even if an organization is not headquartered in any of the 21 states above but hires remote workers, organizations must pay employees at least the minimum wage in the location where they are working. 

For example, a company is headquartered in my hometown of Dallas, Texas, but it wants to hire a remote worker in Connecticut where the minimum wage is $16.35/hour. You may think, well the company is headquartered in Texas, that must mean the company can pay that Connecticut employee $7.25/hour, the minimum wage in Texas. Wrong again. That company must pay that employee at least $16.35/hour because that is where the employee works.  

And don’t worry, this analysis gets more complicated with the localities that implemented increases to local minimum wages.

California companies also need to account for minimum wage increases in individual municipalities 

In the Golden State, minimum wage laws are even more complicated, as California has a statewide minimum wage of $16.50, but individual cities have enacted their own minimum wage increases. 

Here are the cities that will have a minimum wage increase above that set by the state. 

Let’s say you’re a Sacramento-headquartered restaurant chain, and you want to hire a line cook at one location in Petaluma, California. California’s state minimum wage is $16.50/hour, and Sacramento does not have a local minimum wage. Like the example above, since the line cook works in Petaluma, California, the Sacramento company must pay the Petaluma minimum wage of at least $17.97/hour. Making more sense now?

Other cities with minimum wages above their state minimum wages 

California isn’t the only state with cities that have set a higher minimum wage going into 2025. The municipalities in the chart below will also increase their minimum wages on January 1, 2025, which are higher than their state requires. 

The $15-dollar minimum wage is the future 

Currently, a third of all workers live in states with a minimum wage of at least $15.00/hour. The number of workers under this standard will only increase in the coming years, and organizations must prepare. 

As more states adopt minimum wage increases, organizations should consider refining their pay structures to promote internal equity and fairness. This process will involve adjusting ranges and addressing issues such as pay compression as it arises.

Another consideration organizations should think about is how to attract and retain the best talent. Organizations operating in states with a $7.25/hour minimum wage may be unable to attract and retain the best talent by paying this rate, although they aren’t running afoul of the law. If you’re an organization trying to attract and retain the best workers, it may be valuable to evaluate your compensation philosophy because I guarantee you that in this day and age, it is very hard to attract workers at $7.25/hour.

By aligning your compensation strategy with minimum wage changes, organizations not only comply with legal requirements but improve retention and attract the right talent. Ultimately, adapting to these changes isn’t about simply meeting the minimum standard but adopting a compensation philosophy that prioritizes fair pay, recognizes performance and experience, and invests in its employees.

Ready to get started building pay ranges based on the new minimum wage requirements? The first step is pricing your jobs.