On Monday, Governor Mark Dayton signed into law legislation that will increase Minnesota’s minimum wage to $9.50 by 2016. With the passage of the new minimum wage law, Minnesota becomes the fifth state this year to raise its minimum wage. Minnesota also goes from having one of the nation’s lowest minimum wages to among the nation’s highest. The new minimum wage law has four elements that are important to note.
First, the increase does not happen all at once. The law provides for graduated minimum wage increases in August 2014, August 2015, and August 2016.
Second, Minnesota’s minimum wage will not stop at $9.50. Beginning on January 1, 2018, the minimum wage will be indexed to inflation and will automatically increase every January 1st based on the rate of inflation as measured by the implicit price deflator and capped at a maximum of 2.5%. The law also provides that the indexed minimum wage increase could be suspended for one year by the Minnesota Department of Labor and Industry if leading economic indicators indicate the possibility of a substantial downturn in the state’s economy.
Third, the statute provides for different minimum wage requirements depending on whether the employer is classified as a “large employer” or a “small employer.” The rates for large employers (those with annual sales or business done of at least $500,000) in 2014-2016 are:
- $8.00 per hour beginning August 1, 2014;
- $9.00 per hour beginning August 1, 2015;
- $9.50 per hour beginning August 1, 2016.
The rates for small employers (those with annual sales or business done less than $500,000) in 2014-2016 are as follows:
- $6.50 per hour beginning August 1, 2014;
- $7.25 per hour beginning August 1, 2015;
- $7.75 per hour beginning August 1, 2016.
Fourth, the law contains a carve-out for large employers that employ workers under 18 years old or that employ younger workers getting trained into new jobs. Large employers may pay employees under 18 years old using the same minimum wage requirements as set out for small employers. They may also pay employees that are under 20 years old using the same minimum wage requirements that apply to small employers for the first 90 consecutive days of that worker’s employment.
Finally, employers should be aware that the new minimum wage law does not contain a carve-out for tipped workers. Employees that receive tips must be paid the same minimum wage as other employees and, under Minnesota law, employers may not count tips received by an employee towards the payment of minimum wage.
Employers should plan accordingly in advance of the August 1, 2014 effective date.