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December 26, 2024
The fast-approaching minimum wage increases in California and other states place an added burden on businesses in every sector to adjust payroll and workers comp. Starting on January 1, 2025, the across-the-board pay hike raises the Golden State minimum wage to $16, doubling it over the last decade.
One would anticipate relatively straightforward payroll cost increases in step with the $16 hourly minimum. The details of this CA minimum wage increase are anything but simple. Employers could be tasked with making annual cost of living adjustments, and that, in turn, will impact how workers' comp and minimum wage alterations are administered. Making matters even more burdensome for organizations, fast food chains must pay employees at least $20 per hour, and CA counties have taken it upon themselves to implement higher minimum wage standards over the next year.
Multiple States to Implement minimum wage increases
Although California has become the state policy insiders focus on, largely because it seems to run ahead of others making changes. This is not necessarily the case as we head into 2025 on the heels of inflation that dramatically changed the cost of living for Americans. These are other states that reportedly have minimum wage increases on the books.
- Alaska: $11.91 up from $11.73
- Arizona: $14.70 up from $14.35
- Colorado: $14.81 up from $14.42
- Connecticut: $16.35 up from $15.69
- Delaware: $15.00 up from $13.25
- Florida: $14.00 up from $13.00
- Illinois: $15.00 up from $14.00
- Maine: $14.65 up from $14.15
- Michigan: $10.56 up from $10.33
- Minnesota: $11.13 up from $8.85 for small employers and $10.85 for large employers.
- Missouri: $13.75 up from $12.30
- Montana: $10.55 up from $10.30
- Nebraska: $13.50 up from $12.00
- New Jersey: $15.49 up from $15.13 ($14.53 for seasonal and small employers up from $13.73)
- New York City: $16.50 up from $16.
- New York State: $15.50 up from $15.
- Ohio: $10.70 up from $10.45 for employers with annual gross receipts of $394,000. $7.50 for employers with annual gross receipts under $385,000.
- Rhode Island: $15.00 up from $14.00
- South Dakota: $11.50 up from $11.20
- Vermont: $14.01 up from $13.67
- Virginia: $12.41 up from $12.00
- Washington: $16.66 up from $16.28
In some cases, states have enacted laws that automatically trigger increases in conjunction with rising cost of living factors. Others have reacted to issues such as inflation, housing shortages, and wide-reaching conditions that affect personal finances. At the end of the day, businesses are charged with dealing with an ever-changing wage landscape that puts enormous pressure on them to pay the salaries, backend expenses, and remain in compliance.
Impact on payroll administration
It’s important for entrepreneurs and relatively new business owners to keep in mind that the effects of minimum wage increases are not restricted to higher workforce expenses. Companies will also need to adjust their overall payroll calculations, including standard deductions as well as matching 401(k) benefits and other wage-based perks. These and other moving parts typically result in elevated peripheral expenditures, such as the following.
Administrative Workloads
The people who handle weekly payroll processing will be tasked with adjusting the salaries of all minimum wage employees. State and federal deductions will require adjustments, and benefits usually follow suit. In other words, payroll processors experience an immediate added burden to their already full- or part-time workload.`
Budget Implications
The rise in labor costs typically prompts employers to revisit their monthly and annual budgets. The uptick in labor costs can either result in reduced profitability or budget cuts. An admin team may need to take a deep dive into the numbers and generate reports so that an informed decision can be reached regarding operational expenditures.
Regulatory Compliance
Payroll administrators’ duties become considerably more complicated heading into 2025. California, for example, has a variety of minimum wage increases that differ from the federal standard, as well as from county to county. Factor in the fact that some industries are required to pay even higher wages, and the job will be a lot harder going forward. The same holds true of states that hitch minimum wage increases to the cost of living. Failing to get it right for each and every worker could result in penalties and fines for non-compliance.
Impact on Workers Comp Administration
A direct and discernible correlation exists between the amount of money employees earn and the premiums employers pay for workers comp insurance. That means a comprehensive report will need to be generated for employers to negotiate with insurance carriers regarding workers comp coverage, policies, and premiums.
To say this will be a complicated process in states such as California, among others, would be a gross understatement. Tracking and implementing wide-reaching minimum wage mandates affect the dollar amounts of injury claims. Big insurance has no intention of taking a loss or slashing profits. It’s also essential to note that states do not necessarily follow the same rules regarding workers comp payouts. For all intents and purposes, employees' higher wages cause an administrative headache for business leaders.
How SPLI Helps Employers Navigate Payroll and Workers Comp Changes
At SouthEast Professional Leasing Inc (SPLI), we are a Professional Employer Organization (PEO) that provides administrative services, including payroll administration, workers comp claims management, and a suite of other business needs. We work diligently to make ongoing wage, benefit, and insurance coverage adjustments to ensure organizations remain in compliance.
The experienced PEO personnel at SPLI are able to reduce administrative expenses because our staff members put a laser focus on adjusting wages, peripheral costs, reporting and advising, and adhering to changing government legislation and policies. As a third-party PEO provider, our organization streamlines payroll for our valued clients as imminent changes such as minimum wage increases and how they affect workers comp and other elements of their operations.
If you are concerned about the ongoing minimum wage changes, their influence on workers comp coverage, and other administrative issues, SPLI provides cost-effective solutions. Contact SPLI today for more information.
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