Time Flies: Minnesota’s Minimum Wage Increases August 1

I may be getting older, but it seems like I just wrote last year’s post about changes in Minnesota’s minimum wage law. However fast it seems to you, on Monday, Aug. 1, 2016, Minnesota’s minimum wage will increase again to $9.50 per hour for large employers. The increase stems from significant changes to Minnesota’s minimum wage statute in 2014, providing for higher minimum wage rates over time indexed to inflation. Employers should ensure they are prepared for the change and that they are also preparing for the substantial change in salary requirements for “white collar” exempt employees coming this December under the FLSA.

Minnesota’s minimum wage is based on the size of the employer, as determined by gross sales, with large employers paying more than small employers. Under Minnesota’s amended 2014 law, a large employer is one that has gross sales of more than $500,000 in annual business per year. In contrast, a small employer is defined to have gross sales of less than $500,000 in annual business per year.

For large employers, the Minnesota hourly minimum wage will increase to $9.50 per hour on Monday, Aug. 1, 2016. For large employers, the new state rate is significantly higher than the federal minimum wage of $7.25 per hour. For small employers, the Aug. 1, 2016 rate is $7.75 per hour. Minnesota employees are entitled to receive the highest applicable minimum wage when both the state and federal law apply (which is nearly everyone). Any small employer who had been paying the federal minimum wage must now pay the higher Minnesota wage.

Starting on Jan. 1, 2018, the state minimum wage will include an inflation index that will be used to increase the minimum wage in relation to inflation. The inflationary increase is capped at 2.5 percent per year. The inflation index will not be used to reduce the minimum wage in any year with negative inflation.

As described here, in May 2016 the U.S. Department of Labor increased the minimum salary required for most FLSA exempt categories from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The change is effective December 1, 2016 and will be adjusted by the DOL every three years.

Employers should act now to determine if they are large or small employers under Minnesota law and to prepare for the December 1, 2016, change. Small employers must now adjust to the higher rate, and those employers who have been small employers in the past and may be large employers under the new definition should take steps to adjust rates in a timely manner.