At a time when inflation and ongoing staffing issues are already creating budgetary challenges for so many organizations, employers in more than a dozen states are also adjusting to minimum wage hikes this year. Currently 30 states plus Washington D.C. have minimum wages higher than the federal minimum wage ($7.25), and most have raised their minimums again in 2023. CPAs who are well-versed in all the latest updates on state minimum wage increases are positioned to help clients avoid expensive and time-consuming payroll mistakes this year.
Minimum Wage Changes: What’s New in 2023?
There’s a lot of new information available about state-by-state minimum wage changes for 2023. Here are some of the updates that might affect your clients and their budgets this year.
Massachusetts clients are subject to a few minimum wage changes this year. Massachusetts maintains the fourth-highest minimum wage in the country, after D.C., Washington State and California. (D.C.’s minimum wage remains at $16.10 in 2023, while Washington’s minimum rose to $15.74 and California’s rose to $15.50.) The Massachusetts minimum wage is up by 75 cents in 2023, to $15.00 for hourly workers. The service rate for Massachusetts employees who make more than $20 per month in tips rose 60 cents over 2022, to $6.75 for 2023.
Another update affecting Massachusetts clients is the end of premium pay for Sundays and holidays. Premium pay was officially eliminated as of January 1, 2023, after a five-year phase-out created by legislation Governor Baker signed in 2018. Massachusetts employees are no longer entitled to a higher pay rate when working Sundays and certain holidays.
Most states that increased their minimum wages this year raised the hourly minimum by $1 or more. This list includes Delaware, Illinois and Virginia. A few states implemented smaller increases; for example, Maryland’s minimum wage rises by 75 cents for a 2023 rate of $13.25.
While this isn’t new, different states continue to follow different rules around who’s entitled to a wage increase and how much their pay rises this year. For example: New Jersey’s minimum wage increased by $1.13 over 2022, for a new 2023 rate of $14.13 as of January 1. Small businesses and businesses with seasonal employees are allowed to pay a lower rate of $12.93 in 2023, which is still an increase of more than $1 over their 2022 minimum wage. In some places minimum wage is determined by the city or county where the work is done. For example, Minnesota’s minimum wage rose to $8.63 for small employers in 2023, except for Minneapolis where small businesses pay $13.50 (rising to $14.50 in July 2023).
Some states are scheduled to implement minimum wage increases later this year. Connecticut’s minimum wage rises from $14.00 to $15.00 starting on June 1, 2023. Florida’s minimum wage will also rise by $1, to $12.00 starting in September.
What CPAs Can Do for Clients
The start of a new tax year is the ideal time for CPAs to make sure clients are correctly classifying their workers, including properly accounting for hourly employees vs. service wage employees. Calculating payroll for service wage workers is notoriously complex and clients who inadvertently underpay these workers could owe Department of Labor fines and back wages down the road.
CPAs can flag any potential issues with out-of-state or multi-state employees. Clients who have employees working in other states and earning minimum wages might not have the time or inclination to dig into the nitty-gritty of updated minimum wage laws in all those states and cities. CPAs can save clients time and hassle by presenting them with a summary of any state-specific wage laws/updates that will affect their remote workforce in the year ahead.
Beyond making sure that clients know about any relevant minimum wage increases that affect them, CPAs can verify that clients have updated their payroll processes to reflect the new minimum wage rates and to eliminate premium pay (for Massachusetts clients). These updates should be simple but it never hurts to check that nothing has fallen through the cracks for busy clients.
CPAs may also find opportunities to create value for clients by proactively helping them adjust financial plans and budgets in light of higher labor costs.
Establish yourself as a go-to resource on minimum wage and payroll issues so clients know these are burdens they can take off their own shoulders. That way minimum wage increases become one less thing small business owners have to worry about.
CPAs in ConnectPay’s CPA Partners program have a Connected Services Representative to call with any specific questions their clients bring them about minimum wages, payroll taxes and other payroll issues. Connect with us now to learn more about how ConnectPay can help CPAs make payroll easier for their clients.
Drew Schildwachter is the Chief Operations Officer for ConnectPay. Drew joined the team in 2014 with years of experience as a contractor, video retail franchisee partner, operations director, and turnaround specialist for small businesses. Drew specializes in communicating with entrepreneurs about industry challenges that they encounter, and how aligning the best practices in payroll and business administration can alleviate pain points for small business owners.