Littler’s Semi-Annual Rates Update for Minimum Wage, Tips, and Exempt Pay Increases on January 1, 2025 (and Other Developments)

UPDATE: 1) A group of business organizations has filed a petition with the Missouri Supreme Court challenging the validity of Proposition A, a November 2024 ballot measure that increases the minimum wage effective January 1, 2025; 2) Santa Rosa, California announced its 2025 minimum wage will be $17.87.

While Americans across the country headed to the polls to decide who would govern their country, state, county, or city, most decisions were already made concerning what minimum pay rate would govern the employment of non-exempt and exempt employees on January 1, 2025. However, some state and local ballot measures had the potential to – and will – shape 2025 and future years’ pay standards. Additionally, a federal judge vacated the U.S. Department of Labor’s (DOL) rule increasing the salary threshold for exempt executive, administrative, and professional employees. Accordingly, with these notable events behind us, we can now look forward to what employers with U.S. operations can expect to pay their employees at the beginning of the new year, while also cautioning that further changes are always a possibility, as are revised minimum wage adjustment announcements – that happened multiple times this update cycle – so it’s important to consult with counsel to ensure that the rate they intend to pay their employees is “the” rate the law requires.

Notable Post-July 1, 2024 Rate-Related Developments

Federal:¹ On November 15, 2024, a federal trial court judge in the Eastern District of Texas vacated and set aside – on a nationwide basis – the DOL’s 2024 rules increasing the minimum salary amount for exempt executive, administrative, and professional employees by preset amounts on July 1, 2024, and January 1, 2025, and then every three years, beginning on July 1, 2027.

California: On October 1, 2024, the California Department of Health Care Services took action that – after many false starts – triggered October 16th as the start date for the first wage increase for certain health care workers.

California (Sonoma): On November 6, 2024, Sonoma adopted Resolution 92-2024 to establish the relevant inflation metric to use when annually adjusting the minimum wage as CPI-U San Francisco Bay Area for October. As a result, because the relevant inflation increase (2.4%) was less than 3.5% (the cap), the city applied that percentage change when calculating the 2025 minimum wage rates (for 2024 it applied the cap as there was no alternative inflation metric).

Colorado (Boulder): On November 7, 2024, Boulder enacted Ordinance 8664, which creates a new minimum wage ordinance. The first rate will take effect on January 1, 2025 ($15.57), with preset rates in 2026 ($16.82), and 2027 ($18.17), followed by CPI-adjusted rates in 2028 and future years.

Maryland (Prince George’s County): County officials hope to breathe new life into the local minimum wage ordinance by enacting in late November 2024 amendments that will require the local minimum wage to be annually adjusted based on inflation, beginning in 2026. As currently there are no scheduled increases to the state minimum wage – $15.00 per hour since January 1, 2024 – eventually Prince George’s County’s minimum wage might again overtake its state counterpart.  

Minnesota: On October 28, 2024, the Minnesota Nursing Home Workforce Standards Board adopted final rules establishing minimum wage rates for nursing home employees, including but not limited to certified nursing assistants, trained medication aides, and licensed practical nurses, that will take effect on January 1, 2026 if the state appropriates sufficient funding and obtains federal approval.

Michigan: On September 18, 2024, at the request of the state of Michigan and its attorney general, the Michigan Supreme Court clarified issues relating to future minimum wage rates and minimum cash wage rates for tip-credit employees stemming from a July 31, 2024 opinion in which it found unconstitutional legislative amendments that significantly revised minimum wage and tip (and paid sick leave) standards.

Washington (Burien): Before the first rate applicable under its new ordinance even took effect, the city made further amendments, changing the “Level 1” employer size from “more than 500” to “500 or more” full-time equivalent employees in King County, and increasing the amount by which the local minimum wage must exceed the state minimum wage from $3 to $4.50 per hour (Level 1) and $2 to $3.50 per hour (Level 2).

Ballot Measures

Although all of the following results are not yet certified, based on reported numbers, it appears to have been a mixed bag for rate-related ballot measures across the country, with general increases faring well but industry- and tip-related measures failing.

State Level

Alaska (Passed): Measure 1 increases the minimum wage, on July 1, to $13.00 (2025), $14.00 (2026), and $15.00 (2027), then, on January 1, 2028 and each subsequent January 1, adjusts the minimum wage based on inflation. The minimum wage will also impact minimum pay requirements for exempt executive, administrative, and professional employees, who must be paid on a salary or fee basis at a rate of not less than two times the state minimum wage for the first 40 hours of employment each week, excluding employer-furnished board or lodging.

Arizona (Failed): Proposition 138 proposed, in part, to revise tip credit standards so the amount gradually reduces from $3.00 to $2.00 (2025) and $1.00 (2026), with no tip credit available in 2027 and subsequent years, meaning tipped employees would have needed to receive the full minimum wage. Additionally, it proposed to add $1 per hour to the inflation-adjusted minimum wage rates for 2025 and 2026 (TBD).

California (Failed): Proposition 32 proposed to increase the state minimum wage and provide for automatic future adjustments tied to inflation. The first increase would have occurred on or around December 18, 2024, when the minimum wage would have risen to $17 for employers with 26 or more employees and risen again to $18 on January 1, 2025. The minimum wage for employers with 25 or fewer employees would have then risen to $17 on January 1, 2025, and to $18 on January 1, 2026. Thereafter, the $18 minimum wage would have been adjusted annually, effective January 1, to account for inflation, and applied to all employers. In California, there are a lot of standards that are pegged to the state minimum wage that could have been affected, including, e.g., the minimum amount of pay for executive, administrative, or professional employees to be exempt from overtime and minimum wage requirements, including for health care workers.

Massachusetts (Failed): Question 5 proposed to revise tip credit standards so the amount gradually reduces from $8.25 to a specific percentage of the minimum wage on January 1 – 64% (2025); 73% (2026); 82% (2027); 91% (2028) – with no tip credit available beginning in 2029.

Missouri (Passed): Proposition A, in part, increases the minimum wage on January 1 to $13.75 (2025) and $15.00 (2026), with annual adjustments based on inflation occurring on January 1, 2027 and each subsequent January 1.

Local Level

Arizona (Glendale) (Failed): Proposition 499 proposed, in part, a $20 minimum wage for certain hotel and event center employees to take effect 30 days after the ordinance does, with annual increases based on inflation occurring on January 1, 2025 and each subsequent January 1. The minimum wage would have been exclusive of tips, gratuities, bonuses, and service charges (for which there was also a separate statute in the ordinance governing standards). The proposed ordinance also contained a premium pay requirement for room attendants that depended on their room cleaning workload and how many rooms the hotel has.

Maine (Portland) (Passed): An initiative limits the applicability of the city’s existing emergency minimum wage to when the city – rather than the city or the state – declares an emergency geographically applicable to the employee’s workplace (unless teleworking is possible).

Washington (Everett) (Mixed Results): Two competing ballot measure were put before voters. Initiative 2is gre4-01 (Passed) creates an ordinance that will require, on July 1, 2025, a $20.24 minimum wage for “large” employers – those with 501 or more employees in Washington State – with annual adjustments based on inflation beginning on January 1, 2026 and occurring each subsequent January 1. Other employers will pay $2 less than that rate on July 1, 2025, and $1 less on July 1, 2026. On January 1, 2027, the “large” employer rate, adjusted for inflation, will apply to all employers. Initiative 24-02 (Failed) proposed similar minimum wage standards, but employers would have been allowed to count more compensation sources when determining whether an employee was paid the minimum wage, such as tips.

New Mexico, Same Old Issues

New Mexico has numerous cities and counties with a local minimum wage ordinance. For many years these local rates exceeded the state rate. However, in 2021 the preset state rate overtook many inflation-adjusted local rates, including Albuquerque’s. While other localities, like Bernalillo County, conceded that the state rate exceeded the local rate, Albuquerque has travelled a different path, and appears intent to do so again in 2025. Under Albuquerque’s ordinance, the minimum cash wage (MCW) employers must pay tip credit employees is 60% of the Albuquerque minimum wage. However, the city is continuing to base the Albuquerque MCW on the higher state minimum wage. Using higher state numbers would have been required under the ordinance had the city enacted certain amendments in 2024, but those proposed changes failed.

Minimum Wage, Minimum Cash Wage & Tip Credit Changes

Pre-January 1, 2025 Changes

Changes on January 1, 2025

In the below chart we include the (mostly) generally applicable minimum wage (MW) that will change on January 1, 2025.² We list the rate that will apply after the change. In certain jurisdictions – excluding, e.g., Alaska, California, Minnesota, Montana, Washington – 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.

Post-January 1, 2025 but Pre-July 1, 2025

Exempt Employee Pay Increases on January 1, 2025

Executive, Administrative and/or Professional Employees

Under federal law, where employees must be paid on a salary or fee (if administrative or professional only) basis, the weekly minimum salary is expected to be (once again) $684 per week due to what appears to be a successful challenge to the 2024 FLSA salary threshold rules. Additionally, the following states have pay requirements that would exceed the $684 per week federal rate.

In Alaska, where employees must be paid on a salary or fee basis at a rate of not less than twice the state minimum wage for the first 40 hours of employment each week, excluding employer-furnished board or lodging, the weekly minimum salary will increase from $938.40 to $952.80 on January 1, 2025 (then again on July 1, 2025, due to Measure 1).

In California, where employees must earn a monthly salary equivalent to no less than twice the state minimum wage for fulltime employment (employment in which an employee is employed for 40 hours per week), the weekly minimum salary will increase from $1,280 to $1,320.

In Colorado, where employees must be paid at least the salary amount established in regulations and the salary must be sufficient to pay the minimum wage for all hours in a workweek, the weekly minimum salary will increase from $1,057.69 to $1,086.25. Additionally, for purposes of the state’s highly compensated employee exemption, such employees must receive at least this weekly salary amount. In addition, their annual salary must equal at least 2.25 times the rounded annual salary for exempt employees, which will increase from $123,750 to $127,091.

In Maine, regular compensation, when converted to an annual rate, must exceed 3,000 times the state minimum wage or the FLSA’s annual salary rate, whichever is higher. Originally, the federal rate was going to be the higher of these two figures. Shortly after the federal rule was vacated, however, the state labor department announced that the “annual compensation exceeds 3,000 times the state minimum hourly wage . . . .” rate would control for 2025. While, mathematically, an annualized salary of one cent more than 3,000 times the 2025 minimum wage would “exceed” the rate, the state labor department announced that the annualized rate should be one dollar more than $43,950 ($14.65 x 3,000), i.e., $43,951. When converting the annualized rate of $43,951 to a weekly rate (i.e., dividing by 52 weeks*), it would be either $845.21 ($43,950.92) or $845.22 ($43,951.44). For perspective, a $845.19 per week salary would produce an annualized rate of $43,949.88 (less than 3,000 times the minimum wage) and a $845.20 per week salary would produce an annualized rate of $43,950.40 (exceeds 3,000 times the minimum wage). *If a law only discusses a specific period of time connected to the salary (e.g., per year), employers must ensure that any translation of that salary (e.g., per week) still ensures employees receive a salary that meets the minimum amount standard in the law.

In New York, where an exempt executive or administrative employee must be paid a salary, including board, lodging, or other allowances and facilities, the weekly minimum salary will increase from $1,200 to $1,237.50 in New York City, along with Nassau, Suffolk, and Westchester Counties, whereas the weekly minimum salary will increase from $1,124.20 to $1,161.65 in other parts of the state.

In Washington State, where employees must be paid on a salary or fee (if administrative or professional only) basis at a rate of not less than a specific multiplier of the state minimum wage for a 40-hour workweek, excluding board, lodging, or other facilities, the weekly minimum salary will increase from $1,302.40 to $1,499.40 for employees of employers with 51 or more employees, and from $1,302.40 to $1,332.80 for employees of employers with 50 or fewer employees.

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 for each hour worked in a workweek. Of these states, the following will increase their minimum wage on January 1, 2025: Arizona (all 4 exemptions); Colorado; Illinois; New Jersey; Rhode Island (Possibly); South Dakota, and Virginia. Additionally, in Arizona, Colorado, and Illinois there will be increases to local minimum wage rates.

Computer Employees

In California, certain computer software employees are exempt from state overtime requirements if they receive a certain hourly or salary rate. In 2025, the minimum hourly rate will increase from $55.58 to $56.97, the minimum monthly salary will increase from $9,646.96 to $9,888.13, and the minimum annual salary will increase from $115,763.35 to $118,657.43. In Colorado, employees in highly technical computer-related occupations must receive at least the lesser of the applicable salary noted above or hourly pay that in 2025 increases from at least $33.17 to at least $34.07. In Washington State, compensation for exempt computer employees paid on an hourly basis will increase from $56.98 to $58.31.

Instructors at Non-Profit Private Higher Education Institutions

California law also provides that employees providing instruction for a course or laboratory at non-profit higher education institutions are exempt if, in addition to performing certain duties, they are paid a monthly salary equivalent to no less than twice the state minimum wage for a 40-hour workweek or, when employed per course or per laboratory, they receive a minimum payment per “classroom hour”; in 2025, that rate will increase from $144 to $148.51 per hour.

Medical Employees

In California, to be exempt from state overtime requirements the minimum hourly rate that licensed physicians and surgeons must receive will increase from $101.22 to $103.75.

Commissioned Employees

To qualify under the 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 of 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 January 1, 2025 rate changes, the 7(i)-type exemption requires – in part – an employee’s pay to either equal or exceed one-and-a-half times the state minimum wage: California; Colorado; Minnesota; New York (Possibly); and Washington. Additionally, Connecticut requires pay to equal or exceed two times the state minimum wage.