By: Jonathan R. Mook and Colete Fontenot
The Virginia General Assembly for the first time in ten years has increased the state’s minimum wage and has established a mechanism to raise the minimum wage in the coming years. Minimum wage workers in Virginia will now see a substantial raise next year, and in the years that follow – potentially more than doubling to $15 an hour by 2026.
What Are the Increases?
The new Virginia law is fairly complicated in terms of its provisions increasing the minimum wage over time. Here’s the rundown:
Beginning May 1, 2021, employees paid at the current federal minimum wage of $7.25 would need to be paid $9.50 an hour – an increase of $2.25 per hour. After that, the minimum wage will increase automatically on the first day of the year by $1.50 every year until 2023. In 2023, the minimum wage will be increased by only $1.00; and in 2024, there will be no increase at all.
Under the measure as passed, the minimum wage also will not increase in 2025 and 2026 unless there is a new vote in the General Assembly to authorize the increases, which would be at the rate of $1.50 per hour. If the legislature does not enact authorization for a wage increase, however, that does not mean the minimum wage will not rise. Instead, beginning in 2027, a yearly adjusted minimum wage will be imposed, with increases based on the yearly increase in the Consumer Price Index (CPI). Even if the CPI falls, the adjustment cannot be less than zero.
Who Is Covered?
At the present time, if you have four or more employees, you must pay the state minimum wage. Importantly, the new legislation also removes any limitation on the number of employees you must have in order to comply. One is enough. The only exclusions are for farm workers, work study students, and students under the age of 18 who work less than 20 hours per week.
For Now, No Regional Differentials
Many Virginia legislators fought hard for regional differentials, which would have allowed for variations of the minimum wage based on the economics of the particular area. Members in rural areas, where the cost of living is lower than the more populous parts of the state, expressed concerns about imposing what they termed a “Northern Virginia rate” on the rest of the Commonwealth. In the end, the new legislation does not include any regional distinctions.
Starting in 2022, however, the Virginia Department of Housing and Community Development, the Economic Development Partnership Authority, and the Employment Commission will “conduct a joint review of the feasibility and potential impact of instituting a regional minimum wage in the Commonwealth.” A working group formed by these agencies will study and evaluate influential factors, including linking the minimum wage to the cost of living in the area served, the impact on employers and the fringe benefits they offer, the impact on workers with a focus on income inequality, and the experience of other states with a regional wage. Approving a regional variation in the minimum wage will require another vote in the General Assembly before July 1, 2024.
Getting Ready for the Increase
The General Assembly’s increase in the minimum wage moves Virginia from having one of the lowest state minimum wages to one of the highest. Undoubtedly this increase will have an impact on virtually all businesses in the Commonwealth – even those that now pay their employees more than the minimum wage. That’s because minimum wage increases usually have the real world effect of boosting the wages of all hourly employees.
What should you be doing to prepare for the increase that kicks in on May 1, 2021? Here are some suggestions:
- Make sure your payroll department or payroll service is aware of the minimum wage increase and is prepared and stays in compliance with the new law.
- Check and double check your cash flow to make sure you will have funds available for the increased wages you will be paying to your minimum wage employees.
- If you are planning to hire minimum wage workers, create a hiring plan you can afford given the upcoming wage increase. In some cases, you may find that hiring temporary workers, as needed, is less expensive than taking on full-time regular employees.
Finally, in four years if not before, the General Assembly will be addressing the minimum wage again. Get involved in the legislative process and let your state representatives know about the real world impact the increase in the minimum wage is having on your business operations. Are you needing to lay off employees or having to reduce hiring as a result of the minimum wage increase? This is critical information that you and only you can provide to those legislators who will be making the decisions about the economic future of your business.
Jonathan Mook is a partner in the office of DiMuroGinsberg, P.C. He can be reached at firstname.lastname@example.org. Colete Fontenot is a legal assistant who provided much valued research assistance in preparing this article.