It’s time again for our mostly rates-only update that summarizes scheduled state- and local-level wage increases throughout the summer and fall of 2023, along with some rate changes that occurred in 2023 before publication. Employers can use this information to determine the minimum amount they must pay non-exempt, tipped, and certain exempt employees. Before we chart out these rates, we briefly highlight some notable rate-related developments that occurred in 2023 and discuss how inflation still impacts minimum pay standards. Pending or future legislation might change rates that will apply in 2023, so we recommend employers monitor legislative developments and consult with counsel to confirm rates did not change since publication.
Notable 2023 Rate-Related Developments
District of Columbia: January 1, 2023, was supposed to be the date when the minimum cash wage for tip credit employees would increase to $6.00 per hour due to voter-approved changes that occurred at the November 8, 2022, election (including the gradual phasing out of the tip credit). However, as it had done previously with proposed changes to tipped employee standards, the District of Columbia enacted legislation that partially overrode the ballot measure and delayed the operative date of these changes from January 1 to May 1, 2023. As a result, D.C. employers are subject to two rate-related changes within, essentially, a two-month period, as the amended law also requires the minimum cash wage to increase to $8.00 per hour on July 1, 2023.
Maryland: With the signing of SB 555 on April 11, 2023, Maryland eliminated its current two-tier minimum wage effective January 1, 2024, at which point a $15.00 per hour minimum wage will apply to all employers (currently the rates are $13.25 and $12.80, depending on whether an employer has 15 or more, or 14 or fewer, employees). Additionally, the legislation removed annual adjustments to the minimum wage, meaning the $15.00 minimum wage will apply from January 1, 2024, until the legislature and governor decide to increase the rate.
Michigan: On January 26, 2023, a three-judge panel of the Michigan Court of Appeals issued a ruling that maintained the status quo concerning Michigan’s minimum wage and tip provisions and reversed a Court of Claims decision that found that the state legislature had violated the Michigan Constitution when it overhauled revisions to the law only months after it had adopted as law a proposed ballot measure covering these topics. The appellate court decision, in turn, has been appealed to the Michigan Supreme Court.
New York: On May 3, 2023, the governor signed a budget bill that establishes increases to the state minimum wage rates that apply in New York City (which has been $15.00 since December 31, 2019), Westchester, Nassau, and Suffolk Counties (which has been $15.00 since December 31, 2021), and elsewhere in the state ($14.20 since December 31, 2022). On January 1, 2024, the state minimum wage will increase to $16.00 per hour in New York City and Westchester, Nassau, and Suffolk Counties, and it will increase to $15.00 elsewhere. Additionally, preset rate changes will occur – now on January 1 instead of December 31 – in 2025 and 2026, with annual adjustments occurring for 2027 and future years. As a result of these changes, New York employers will also see pay increases to the minimum weekly salary threshold amount for various exempt employees, but those amounts will not be officially known until the state labor department announces revised rates later in 2023.
Consumer Price Index Continues to Affect Pay Rates
Although percentage changes to the consumer price index have been trending downward, comparatively speaking more current figures exceed those we saw before inflation began picking up steam around Spring 2021. For example, nationally the March 2021 figures increased around a percentage point compared to those in February 2021, from 1.7 to 2.6% (CPI-U) (Consumers) and from 1.9 to 3% (CPI-W) (Workers). We then saw a point-and-a-half increase when comparing figures in April and March 2021, with increases of 4.2% (CPI-U) and 4.7% (CPI-W). From there, inflation was off to the proverbial races, gradually increasing in 2021, peaking mid-2022, then beginning a gradual descent to where we find ourselves currently: 4.9% (CPI-U) and 4.6% (CPI-W) in April 2023.
This rollercoaster ride plays out in the minimum wage adjustments, with interesting outcomes when we compare 2023 to 2022 adjustments. For example:
- Although some rate changes will occur on the same date for localities within close proximity of each other, the date a location uses to make the calculation adjustment matters. Consider, in California, the City of Los Angeles and the County of Los Angeles. Before July 2022, each location had a $15 minimum wage. For 2022 calculation purposes, inflation was increasing, so, because the county adjustment was based on November figures, its increase was less than the city’s adjustment based on December figures: $15.96 (County) and $16.04 (City). For 2023 calculation purposes, however, inflation had been decreasing, so the city’s later-in-the-year metric means its percentage change was less, which has allowed the county to leapfrog the city even though it started with a lower number to adjust: $16.90 (County) and $16.78 (City).
- We also see CPI switcheroos within the same jurisdiction. Some locations that had comparatively modest rate adjustments in 2022 have more robust increases in 2023, e.g., this occurs under some local laws in California, Maryland, and New Mexico.
Changes to the Minimum Wage, Minimum Cash Wage & Tip Credit
In the below chart (organized chronologically, then by jurisdiction) we include the generally applicable1 minimum wage (MW) and identify the date in 2023 when the change occurred or will occur. We list the rate that applied before the change (Pre) alongside the new rate (Post). In certain jurisdictions – excluding, e.g., California, Minnesota, Nevada, Oregon – employers may be able to count tips an employee receives toward the minimum wage. In those jurisdictions that permit a tip credit (TC), if the direct wage an employer pays (minimum cash wage or MCW) and tips an employee earns equals the minimum wage, an employer satisfies its minimum wage obligation, but, if the direct wage plus tips does not equal the minimum wage, an employer must pay the employee the difference.
Changes to the Exempt Employee Pay
White Collar Employees Covered by Minimum Wage: In various states, employees covered by the executive, administrative, professional, or outside sales exemptions are exempt from state overtime requirements, but not exempt from state minimum wage requirements. In these jurisdictions, such employees must earn at least the applicable minimum wage. In one such state, Nevada, on July 1 the minimum wage will increase to $11.25 or $10.25 per hour, depending on whether an employer offers health benefits. Note that, in Illinois, local minimum wage rates may apply (see above), which could affect executive, administrative, or professional employees.
Commissioned Employee Overtime Exemption: To qualify under the federal FLSA’s 7(i) overtime exception, the regular rate of pay for an employee of a retail or service establishment must exceed one-and-a-half times the federal minimum wage, and more than half the employee’s compensation for a representative period (not less than one month) must represent commissions on goods or services. In the following states with upcoming mid-year 2023 rate changes, the 7(i)-type exception requires – in part – an employee’s pay to either equal or exceed one-and-a-half times the state minimum wage: District of Columbia ($17.00); Nevada ($11.25 or $10.25); Oregon ($15.45, $14.20, or $13.20). Additionally, in Connecticut ($15.00), pay must exceeds two times the state minimum wage.
Nevada Daily Overtime Exception: Nevada law contains both weekly and daily overtime requirements. An exception to daily overtime standard exists, however, for employers whose hourly rate equals or exceeds one-and-a-half times the state minimum wage. For this exception to apply, effective July 1, 2023, the employee’s hourly rate must be at least $16.875 or $15.375 per hour, depending on whether an employer offers health benefits. Note, however, that weekly overtime standards still apply to these employees.