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How Changes Of Minimum Wage Laws Affect Your Business?

New minimum wage is coming. Or is it not? What to prepare for with new Biden administration?

The 2021 laws regarding increases to the minimum wage may raise the hourly pay rate from the current federal rate of $10.50/hr to $15/hr as advocated by Joe Biden for state contractors (please see the important difference between state contractors and every other business. This proposed minimum wage is for employees working for companies that are providing goods and services to national apparatus and doesn't affect other businesses).

That is quite a jump that is going to affect many business' bottom line, especially small and medium enterprises where there is a higher percentage of employees on a minimum wage.

Larger companies won't be excused from these changes, and since the jump is fairly large, they will be looking for ways to cut their costs as well - mostly with automation, replacing workers with robots and with outsourcing and offshoring to countries with cheaper labour.
But not every company can offshore easily. Small bike business operating in New York will hardly move its shop assistant to Ukraine.

So how are changes in minimum wage going to affect your business?

States Most Aggressive In Raising Minimum Wages

But what if J. Biden won't prioritize minimum wage as his priority for the upcoming year? Or what if you won't belong to the chosen companies providing goods and services to the government? Then it will be the states dictating the rules. As you will discover in a table below, in some states, there are no changes what so ever, and Federal wage minimum applies, $7.25/hr. In some states, like Wyoming, the minimum is even lower, standing at $5.15/hr for companies that aren't subject of Fair Labor Act. 

States with the highest minimum wage for 2021

Similarly to 2020, it is going to be Washington ($13.50 -> $13.69), Washington D.C. ($15.00 -> $15.00), Connecticut ($12.00 -> $13.00), Massachucets ($12.75 -> $13.50) and California ($13.00 -> $14.00) with the highest minimum wages. 

But let's look closer at every stage in the table below. 

State  2020 Minimum Wage  2021 Minimum Wage 
Alabama  $7.25 (Federal, no state minimum)  $7.25 (Federal, no state minimum) 
Alaska  $10.19  $10.34 
Arizona  $12.00  $12.15 
Arkansas  $10.00  $11.00 
California   $13.00  $14.00* 
Colorado  $12.00  $12.32 
Connecticut  $12.00  $13.00 
Delaware  $9.25 $9.25 
Washington D.C.  $15.00  $15.00 
Florida  $8.56  $10.00 
Georgia  $5.15 (Employers subject to Fair Labor Standards Act must pay the $7.25 Federal minimum wage.)  $5.15 (Employers subject to the Fair Labor Standards Act must pay the $7.25 Federal minimum wage) 
Hawaii  $10.10  $10.10 
Idaho  $7.25  $7.25 
Illinois  $10.00  $11.00 
Indiana  $7.25  $7.25 
Iowa  $7.25  $7.25 
Kansas  $7.25  $7.25 
Kentucky  $7.25  $7.25 
Louisiana  $7.25 (Federal, no state minimum)  $7.25 (Federal, no state minimum) 
Maine  $12.00  $12.15 
Maryland  $11.00  $11.75** 
Massachusetts  $12.75  $13.50 
Michigan  $9.65  $9.87
Minnesota  $10.00  $10.08*** 
Mississippi  $7.25 (Federal, no state minimum)  $7.25 (Federal, no state minimum) 
Missouri  $9.45  $10.30 
Montana  $8.65  $8.75 
Nebraska  $9.00  $9.00 
Nevada  $8.00  $8.75**** 
New Hampshire  $7.25)  $7.25 
New Jersey  $11.00  $12.00 
New Mexico  $9.00  $10.50 
New York  $11.80  $12.50
North Carolina  $7.25  $7.25 
North Dakota  $7.25  $7.25 
Ohio  $8.70  $8.80 
Oklahoma  $7.25  $7.25 
Oregon  $12.00  $12.75
Pennsylvania  $7.25  $7.25 
Rhode Island  $10.50  $11.50 
South Carolina  $7.25 (Federal, no state minimum)  $7.25 (Federal, no state minimum) 
South Dakota  $9.30  $9.45 
Tennessee  $7.25 (Federal, no state minimum)  $7.25 (Federal, no state minimum) 
Texas  $7.25  $7.25 
Utah  $7.25  $7.25 
Vermont  $10.96  $11.75 
Virginia  $7.25  $7.25 
Washington  $13.50  $13.69 
West Virginia  $8.75  $8.75 
Wisconsin  $7.25  $7.25 
Wyoming  $5.15 (Employers subject to Fair Labor Standards Act must pay the Federal minimum wage.)  $5.15 (Employers subject to the Fair Labor Standards Act must pay the $7.25 Federal minimum wage) 

$14.00 rate is for California employers more than 25 employees. Employers in California with 25 or fewer employees have a minimum wage of $13.00/hr.

**$11.75 applies to Maryland employers with 15 or more employees. Employers in Maryland with fewer than 14 employees must pay a minimum wage of $11.60 per hour.

***$10.08 rate is for large employers in Minnesota (with annual gross revenues of at least $500,000). Small employers have a minimum wage of $8.21 per hour.

****$8.75 is for Nevada employees who are offered health insurance. Nevada employees who are not offered health insurance must receive $9.75 per hour.

Learn more details about minimal wage in your state in this resource by DOL. 

The effect on businesses largely depends on the size of the business and number of employees. Raising or retaining minimum wage rates creates an irregular pattern of rates from state to state.

How This Affects Businesses

From an accounting standpoint, small businesses view any wage increases as problematic. Larger corporations are less inclined toward major concern, even though these businesses hire a greater number of employees and are most affected. However, the basis for employers who must pay minimum wage rates to employees depends on the gross sales of the business. For small businesses, gross sales must be less than $500,000 and all business transactions must fall inside state lines.

The pros and cons affecting businesses under minimum wage laws that affect your business in 2021 are that your business must secure a higher level of gross sales/profit. Cons of the higher minimum wage are that your business won't attract a more experienced, skilled range of employees. How is it possible? Normally when minimum wage raises, employees on no-minimum request their rise as well, as they become paid minimum, while their skills and expertise are above minimum-wage workers. And not paying them higher can resolve in them leaving to a place that will, or simply change their work position to easier work, that will generate you less profit, but will cost you the same.

Furthermore, changes to minimum wages laws could adversely affect your business in 2021 if your markets have not been profitable. Accounting departments in small businesses may find the need to update versions of their wage and salary compensation applications.

How Minimum Wage Law Changes Affect State Economies

The effect of changes to minimum wage laws will likely not have much effect on states with existing high costs of living. Any increases in states like NY, NJ or MA, for example, will have little impact on businesses. NYC has already raised the minimum wage to $15/hr. with little effect. However, to compensate for this increase, NYC also lowered business tax rates which attracted more businesses to the state.

States most likely to have more serious economic effects are those with traditionally low costs of living and lower wage scales. For example, Georgia has a $5.15 minimum wage rate and Louisiana has none. The overall effect for these states will be greater competition between states for employees who seek higher wages to meet the cost of living obligations.

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