Whether you’re a part of a big company or a small business, it’s important to understand the discussions happening around the federal minimum wage in 2021. This is especially true for business owners. Knowing what’s coming can help ensure that you don’t add more staff to your payroll than you can afford.
It’s also important to remember that each state has the ability to increase the minimum wage as it sees fit. Recently, many states have increased their minimum wage by $1. This article serves as an overview of state and federal minimum wage rates in 2021 and how these rates are, or could be, changing.
What is meant by federal minimum wage?
The federal minimum wage is the lowest rate that employers can pay their hourly employees. Whenever the federal government alters the minimum wage, they do so via the Fair Labor Standards Act, which was first adopted in 1938. With a minimum wage in place, employers must pay their employees at or above that amount.
Some types of employees are exempt from the guidelines in the Fair Labor Standards Act or aren’t covered by it, though. For example, tipped employees, such as restaurant servers, can be paid at lower rates than other hourly employees.
Current Federal Minimum Wage in 2021
As of the time of this writing, the federal minimum wage is $7.25 and has been since 2009. While this rate has been unchanged for over a decade, a number of cities and states have increased their minimum wage rates regularly during that time.
When you do business in a state with a minimum wage that’s higher than the federal rate, you must pay the higher amount in accordance with state law. States usually set their minimum wage rates to accommodate the overall cost of living in the area. For instance, the current minimum wage in California is $14 per hour for businesses with more than 26 employees. In Montana, where the cost of living is lower, the minimum is $8.65.
In 2020, state minimums were higher than the federal minimum in 29 states.
While changes to the minimum wage typically occur at the state or federal level, they can be altered at the city or county level, too. The minimum wage in the state of Illinois is $11 per hour. Yet, the rate in the city of Chicago is $14 per hour. Something else to keep in mind.
State Wage Hikes for 2021
If you own a business or are starting one soon, most of the 2021 wage changes became effective January 1. Many states, such as Arkansas, Illinois, and Delaware, have already increased their rates by $1. Others are rolling out their changes later in the year. For example, the minimum wage in Connecticut will be increasing from $12 to $13 in August. Virginia, Florida, Oregon, and Nevada will all see changes later this year, too.
In some cases, states prefer to limit the increases based on how many employees you have. We’ve already shared one example: California. Maryland is another. In Maryland, the minimum wage rate for 2020 was set at $11.00. In 2021, the new minimum is $11.75, but only for employers with more than 15 employees. Otherwise, the minimum is $11.60. New Jersey, Nevada, and Minnesota also have varying guidelines for the minimum wage in 2021.
Altogether, at least 25 states have already or will be increasing their minimum wage in 2021.
Possible Increase to Federal Minimum Wage in 2021
Because the federal minimum wage was last changed over a decade ago, members of Congress have been talking about increasing it in 2021 so that it better reflects the cost of living today. This is something that all employers should be aware of. Legislators are looking to increase the rate to $15 per hour, which would more than double it. Such an increase would likely impact the retail and grocery industries the most.
If such an increase occurs, it would need to be passed by Congress. A recent plan being debated is to increase the federal minimum wage in phases. If enacted, the rate could increase to $9.50 this year. One argument against a wage hike is that it would force employers in many states to lay off employees they can no longer afford. And in states where the minimum wage rate already increases periodically, employers are often forced to raise prices to compensate. Even so, with so many states increasing their minimums, it likely won’t be long before we see an increase in the federal rate.
To protect your business, you should prepare for possible change at the state or federal level. One way to do that is by reducing your operating costs. Labor is your biggest controllable expense, and smart labor management can instantly reduce how much you spend each pay period. With TimeForge, you can build perfect schedules in seconds and avoid overstaffing and unnecessary overtime. And if you’re in a state with fair workweek laws, no problem. Our software can handle complex logic around predictive scheduling, split shifts, clopens, and more.