UPDATE: Since publication, California enacted legislation that further delays the start date for the healthcare minimum wage.

While some across the United States are working on their tans, many employers are working on managing their labor budgets so they don’t get burned by increases in minimum pay standards for non-exempt, tipped, and certain overtime-exempt employees that will take effect on July 1, 2024. Before lathering up for summer rates, however, we briefly highlight some notable rate-related developments that occurred in the preceding seasons. Of course, employers should watch out for sneaker waves – pending or future legislation – that could wipe out (change) other rates in 2024, and consider checking in with the lifeguard on duty (knowledgeable employment counsel) before diving headfirst into the compensation waters to confirm your pay practices are, like the sun’s rays, golden.

Selected Rate-Related Highlights Occurring After January 1, 2024

Federal

Increased Minimum Salary or Fee Amount for Certain Exempt Employees: On April 23, 2024, the U.S. Department of Labor announced a final rule to significantly increase the salary or fee level needed to qualify for the FLSA’s overtime exemptions applicable to executive, administrative, and professional employees to $844 per week ($43,888 annualized) effective July 1, 2024, and to $1,128 per week ($58,656 annualized) effective January 1, 2025. The rule will also increase the total compensation needed to qualify for exemption under the test for highly compensated employees, to $132,964 per year effective July 1, 2024, and to $151,164 per year effective January 1, 2025. Under the rule, these salary levels will be subject to automatic increases every three years, beginning July 1, 2027. After the rules were finalized, however, numerous lawsuits were filed that challenge the changes’ legality.

State

California Delays Healthcare Minimum Wage: One day before new minimum wage standards for employees in the healthcare industry were set to take effect, California Governor Gavin Newsom signed legislation that delays the initial start date from June 1, 2024, to July 1, 2024. As a result, this changed the 12-month period a rate would apply from June 1 through May 31 to July 1 through June 30. The delay is due primarily to California’s financial situation, as the state itself is an employer of employees in healthcare settings and subject to the law. The cost to the state generally was not thoroughly examined when the law was enacted originally, and since enactment the state has found itself in a less-secure position financially. The already-approved one-month delay affords the legislature and governor more time to resolve state budget issues. Whether further changes to the healthcare minimum wage law will occur remains to be seen.

Minnesota’s Land of 10,000 Rates Becomes More Navigable: Employers with operations in Minnesota know that at the state and local levels there are different rates and/or rate schedules that might vary depending on certain criteria, such as the number of employees an employer has. Due to state-level amendments enacted in May 2024, beginning January 1, 2025, one minimum wage rate will apply to all employers rather than the current two-tier system. Additionally, when the state makes its annual adjustment, the potential ceiling on the increase will rise from 2.5 to 5%.

Local

Approved Ballot Measures: In February 2024, voters in Renton, Washington approved a ballot measure that creates an ordinance that will first apply on July 1, 2024. The next month, March 2024, voters in Long Beach, California approved a ballot measure that amends its minimum wage standards for hotels or related entities and transitions from annual CPI adjustments each July 1 to preset rates on July 1, 2024, 2025, 2026, 2027, and 2028, then returns to annual adjustments on July 1, 2029.

Government-Enacted Ordinances: In Washington State, the City of Burien, in March 2024, and King County (for its unincorporated areas), in May 2024, enacted ordinances that will first apply on January 1, 2025.

Amended Ordinances: At certain times, West Hollywood, California was home to the highest generally applicable minimum wage in the country. In May 2024, it made various changes to its ordinance. First, the city reverted to applying different rates to different types of employers, i.e., a higher rate will (again) apply to hotels and related entities. Second, the city reverted to a different rate schedule for different types of employers, i.e., the originally announced CPI-adjusted rate of $19.61 will go forward on July 1, 2024, but only for hotels and related entities, whereas the next rate increase for other employers will not occur until January 1, 2025. Moreover, going forward, the CPI-adjusted hotel or related entity rate will change annually on July 1, whereas for other employers it will change annually on January 1. Additionally, the city changed the formula for how it will perform the CPI adjustments for other employers. At this time, however, it is unclear how the city will actually determine the adjusted rate.

Non-Exempt & Tipped Employee Pay Increases

In the below charts we include the (mostly) generally applicable minimum wage that will become effective, and when that happened or will happen. In certain jurisdictions employers may be able to count tips an employee receives toward the minimum wage, and in those jurisdictions we identify the applicable minimum cash wage and maximum tip credit, assuming the direct wage an employer pays and tips an employee earns equal the minimum wage.

Changes Before July 1, 2024

Changes on July 1, 2024

Generally Applicable

Industry-Specific Rates

In the following chart we identify July 1, 2024, rates in California – which prohibits tip credits – that will apply in the healthcare industry (“healthcare”) or to certain hotels and related entities (“hotels”).

Changes After July 1, 2024, But Before January 1, 2025

Exempt Employee Pay Increases

In addition to above-discussed changes to federal pay standards – assuming they survive legal challenges – employers should consider how July 1, 2024, state law changes will affect these, and other types of, exempt (or excepted) 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 – but not minimum wage – requirements. In these jurisdictions, such employees must earn at least the applicable minimum wage. In one such state, Nevada, the minimum wage will increase on July 1. Note that, in Illinois, local minimum wage rates may apply, which could affect executive, administrative, or professional employees.

Commissioned Employee Overtime Exemption: To qualify under the federal 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 the employee’s compensation for a representative period (not less than one month) must represent commissions on goods or services. In the following state-level jurisdictions with upcoming July 1 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; Nevada; and Oregon.

Nevada Daily Overtime Exception: Nevada law contains both weekly and daily overtime requirements. An exception to daily overtime standard exists, however, for employers whose hourly rate equals or exceeds one-and-a-half times the state minimum wage, which will increase on July 1.