As Temperatures Rise, So Do Pay Rates Across the Country

Employers can use this information to determine the minimum amount they must pay non-exempt, tipped, and certain exempt employees. Pending or future legislation might change rates that will apply in 2023. While our list is constrained to the Midwest and federal updates, a more exhuastive list of states can be found on Littler Mendelson's website.

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

The chart below (organized chronologically, then by jurisdiction) includes the generally applicable minimum wage (MW) and identifies the date in 2023 when the change occurred or will occur. Listed is the rate that applies before the change (Pre) alongside the new rate (Post). In certain jurisdictions — excluding, e.g. Minnesota — 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 Fair Labor Standards Act's (FLSA) 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.