Employers must comply with federal, state, and local minimum wage laws. While the federal minimum wage ($7.25 per hour) isn't changing next year, more than 20 states and 30 cities will have new minimum wage rates beginning January 1, 2021. Below is a summary of these changes and guidelines to help you comply.
State minimum wage increases:
This chart covers January 1, 2021 minimum wage increases for all applicable states. Some states increase their minimum wage rates mid-year or on a different cycle. The information below applies to January 1, 2021 increases only (Note: New York increases their minimum wage on December 31).
Local minimum wage increases:
Several cities are also increasing their minimum wage effective January 1, 2021. Some of these include:
|Jurisdiction||Minimum wage rate January 1, 2021|
|Daly City, CA||$15|
|El Cerrito, CA||$15.61|
|Half Moon Bay, CA||$15|
|Hayward, CA||$14 (25 or fewer employees)
$15 (26 or more employees)
|Los Altos, CA||$15.65|
|Menlo Park, CA||$15.25|
|Mountain View, CA||$16.30|
$14 (1-25 employees)
|Palo Alto, CA||$15.65|
|Redwood City, CA||$15.62|
Note: Under city law, employers that contribute at least a certain amount towards an employee medical benefits plan may be able to take a limited credit toward the minimum wage. Remember, employers must also comply with the state minimum wage. If the state minimum wage is higher than the applicable city rate with the credit, employers must pay at least the state minimum wage.
|San Carlos, CA||$15.24|
|San Diego, CA||$14|
|San Jose, CA||$15.45|
|San Mateo, CA||$15.62|
|Santa Clara, CA||$15.65|
|Santa Rosa, CA||$15.20|
$14 (25 employees or less)
Note: Under city law, employers that contribute at least a certain amount towards an employee medical benefits plan may be able to take a limited credit toward the minimum wage in 2021. Remember, employers must also comply with the state minimum wage. If the state minimum wage is higher than the applicable city rate with the credit, employers must pay at least the state minimum wage.
|South San Francisco, CA||$15.24|
$9.50 (if not covered by state minimum wage and employer provides healthcare and/or childcare benefits of at least $2,500 per employee per year)
|Las Cruces, NM||$10.50|
$15 (if employer has 1-500 employees and provides $1.69/hour in medical benefits/tips)
This is not an exhaustive list. There may be additional local jurisdictions that have scheduled increases for January 1. Check your local laws to confirm compliance.
As of December 7, 2020, no states or local jurisdictions have delayed their January 1 minimum wage increases because of COVID-19, though it's possible some may consider a delay prior to the New Year. Continue to monitor the status of minimum wage changes in your state and local jurisdiction.
In some jurisdictions, the minimum cash wage required for tipped employees also increases with the minimum wage. For example, the minimum cash wage for tipped employees in Colorado is increasing to $9.30 per hour on January 1, 2021. If a tipped employee's cash wages and tips fail to meet or exceed $12.32 per hour in Colorado, employers must make up the difference. Check your state and local law to determine whether the minimum cash wage is changing on January 1, 2021.
Note: Some jurisdictions, such as California, don't allow employers to apply a tip credit toward the minimum wage. In such cases, employers must pay tipped employees the full minimum in direct cash wages.
Multiple minimum wage rates:
If an employee is subject to more than one minimum wage requirement (such as federal, state, and local), you should generally comply with the rate most generous to the employee. For example, if your state minimum wage is $12.00 and the local minimum wage is $13.00, you must generally pay the employee at least $13.00 per hour, since it's higher than the state and federal minimum wage rates. Additionally, if your business is located in one state, but you have employees (such as remote workers) working in another jurisdiction, the minimum wage in the location where the employee performs work generally applies.
Note: Some requirements may only apply to businesses of a certain size, or employees who perform a certain number of work hours in that jurisdiction. Check your state and local law for details.
Employees earning more than the minimum wage:
When the minimum wage increases, some employers wonder if they should also provide a raise to employees already earning equal to or more than the new rate. While the employer is under no obligation to provide a raise in such cases, some employees may be expecting one. Consider the potential impact on labor costs, employee morale, internal equity (how employees are paid when compared with other employees within your company based on skills and experience), and your typical merit increase schedule.
Most jurisdictions require employers to post an up-to-date minimum wage notice in the workplace. State and federal posters are available for download in the State & Federal Resources section of HR411®. ADP clients with the Labor Law Poster Compliance Update Service receive updated posters automatically.
Your state or city may have additional notice requirements. For example, Oakland, CA requires that employers notify employees of the minimum wage change and post an updated minimum wage notice by December 15, 2020. Check your jurisdiction's requirements to ensure compliance.
More 2021 increases coming:
The minimum wage changes noted above aren't inclusive of all changes scheduled for 2021. Some states and local jurisdictions schedule their changes for July 1 or at another point during the year. For example, Virginia's minimum wage will increase to $9.50 on May 1, 2021. Employers in certain other locations may be subject to two increases in 2021. For example, Florida's minimum wage will increase to $8.65 per hour on January 1 and to $10 per hour on September 30. Closely monitor minimum wage changes in your jurisdiction to ensure compliance.
Potential impacts on overtime exemptions:
In some states, including Alaska, California, Maine, and New York, the minimum salary required to be classified as exempt from overtime is tied to the minimum wage. We covered these and other changes to the minimum salary requirements for 2021 in a recent Tip of the Week.
Note: State and federal law require that certain duties tests also be satisfied to qualify for exemption from overtime.
Ensure that you understand the minimum wage rules that apply to your employees and make any necessary changes in RUN Powered by ADP® before January 1, 2021 (December 31, 2020 in New York). Additionally, be sure to post updated minimum wage notices in each work location.