Why is the Minimum Wage Changing?
Yes folks, on July 1, 2021, Oregon, Nevada, New York, and many cities are raising the minimum wage. These increases will trigger big changes to payroll, including new deduction and tax calculations, adjustments to compensation structure, benefits considerations, etc. The list goes on, and unfortunately, there isn’t much time left to transition.
So why is this happening? Really, there are two main reasons: inflation, and cost of living.
In a nutshell, inflation is the rise in prices over time. From cars and computers to milk and dish soap, everything costs more today than it did 10 years ago because of inflation. This impacts wages because inflation makes every US dollar worth less every year.
States raise minimum wages according to inflation rates because they want their minimum wage employees to have the same buying power today that they had before.
Cost of Living
The cost of living goes up because of inflation. But in many cities, like Seattle, New York, and San Francisco, the cost of living is going up way faster than the inflation rate. This skyrocketing increase has made it more and more difficult for minimum wage employees to live in those cities because they can’t afford it.
States and cities raise minimum wages in urban areas like those listed above to try and prevent minimum wage employees from not being able to live in or near the cities where they work.
Years ago, whether to raise minimum wages was left up to the legislature every year. This made it pretty difficult for businesses—specifically HR departments—to prepare for increases because they didn’t know when or or even if it was going to happen.
Thankfully, most of the states increasing minimum wages have now switched to an automatic system that raises wages on a schedule. Now, HR departments know at least when an increase is coming.
Minimum Wage Increases Scheduled for July 1, 2021
Below are the states and cities that will increase their minimum wages on July 1, 2021.
State-Wide Minimum Wage Increases
The table below shows which states will be increasing their state-wide minimum wages on July 1, 2021:
Local Minimum Wage Increases
The table below shows which cities will be increasing their local minimum wages on July 1, 2021:
What to Do if the Minimum Wage is Increasing in Your Area
Wage increases are great for employees and their morale. If you’re in HR, this is great! At the same time, adjusting your workforce’s wages is also a huge project that has to be completed before the end of the pay period. For some, that’s just two weeks to figure out who needs an increase, make all your payroll changes, and make sure the payments go out on time.
We understand this is a lot in a short period of time, and we want to help! Below are our 6 tips to help you get through a minimum wage increase as smoothly as possible.
1. Check Your Pay Periods
Check your pay periods so that you know where the wage increase will fall. If your employees have a pay period that straddles July 1, 2021, you’ll have to create a paycheck that accounts for the two different wages. This also means two separate deduction rates.
2. Make Sure to Account for ALL Increases
If your company has employees in multiple cities or states, you may need to increase multiple different minimum wages. Make sure to not only check the statewide increases, but also the local increases. For example, if you have employees working in Oregon, you may have to account for three different minimum wages depending on where the employee works in the state.
3. Update Your Compensation Structure if Necessary
A minimum wage increase can disrupt your company’s compensation structure. For example, it might create two positions with different qualification requirements, but the same hourly wage. Or, it might reduce the wage gap between an employee and their supervisor to a point where their wages no longer accurately reflect their positions in the company.
If this is the case in your company, you may want to consider giving your non-minimum wage employees raises to keep your compensation structure in check.
4. Review FLSA and State Overtime Rules
You’re probably wondering if some of your minimum wage employees are now exempt from FLSA overtime requirements. The answer is: probably not. FLSA just recently increased its minimum weekly earnings requirement for overtime exemption from $455 to $684.
And, even though FLSA is the most popular wage and hour law at the party, it certainly isn’t the only one. All states have their own wage and hour laws, and some impose higher earning thresholds for overtime exemptions. So, if you think an employee is now exempt because of the minimum wage increase, remember to check your state overtime laws before making any payment adjustments.
5. Check for Agriculture Minimum Wage Exemptions
Even though state minimum wages are increasing, if your employees work in agriculture, they may be exempt from the increase. Be sure to review both federal and state agriculture laws to determine whether your employees are actually exempt.
Not sure whether your employees are exempt? Contact your state labor office.
6. Don’t Forget About Tipped Employees
Don’t forget about tipped employees! Their minimum wage may be increasing as well.
Tipped employees are often overlooked in minimum wage increases since they’re often exempt. In some states, however, tipped employees have to be paid the state or local minimum wage. And some places are also raising tipped employee minimum wages on July 1, 2021, like Washington D.C..
More Minimum Wage Increases are Coming in 2021
Wouldn’t it be nice if all minimum wage increases came on the same date? As we now know, this unfortunately isn’t the case. 20 states raised their minimum wages back in January, and both Connecticut and Florida will increase their minimum wages later this year on August 1, 2021 and September 30, 2021, respectively.
Navigating minimum wage increases on a company wide scale can be very stressful, but tools like payroll software can help you make adjustments quickly and accurately. If you’re not ready for these increases and want some help, check out Eddy HR’s payroll software.