Get ready for the upcoming state minimum wage increases on Main Street in 2024.

• In 2024, multiple U.S. states, including California, Nebraska, Delaware, Maryland, and Hawaii, will implement more minimum wage hikes.
• California's targeting of fast-food companies may result in the most significant wage increase, as big employers like McDonald's and Chipotle are required to pay their estimated 500,000 fast-food workers at least $20 per hour starting April 1, 2024.
• Employers of all sizes must determine how to cover expenses, which may involve closer examination of benefits expenses, staffing levels, and consumer pricing.

In 2024, numerous U.S. states are expected to see more wage hikes, which may put pressure on Main Street businesses.

While wages are typically higher than the previous year due to the competitive job market, many states are also increasing their minimum wage rates through new legislation. This can be a challenging situation for small businesses that are already facing inflationary pressures. On the other hand, companies understand the need to pay more to attract top talent.

Small businesses are facing a very precarious situation, according to Steve Hall, vice president of economic development lending at the Local Initiatives Support Corporation, a community development financial institution.

In the upcoming year, some of the largest wage increases will affect Main Street.

California fast-food workers

From April 1, 2024, the minimum wage for California's 500,000 fast-food workers will be $20 per hour. In comparison, the average hourly wage for fast-food workers in 2022 was $16.21, according to a state release announcing the change, which references a 2022 research brief from The Shift Project think tank.

McDonald's and Chipotle have stated that they may increase their prices in response to the new law.

Jack Hartung, the chief financial officer, and Chris Kempczinski, the chief executive, both informed analysts on a company earnings call that the chain is likely to raise prices in California by a “mid-to-high single-digit” percentage.

The increase in the targeted food sector is different from California's rise in its minimum wage, which will reach $16 in 2024 from $15.50, a 3.2% increase. Some cities and counties in California have higher local minimums.

Other states where minimum wages are going up in 2024

To attract workers, some states are increasing their minimum wage.

Thirty-one jurisdictions, including 30 states and Washington, D.C., have minimum wages above the federal minimum wage of $7.25 per hour, according to the National Conference of State Legislatures. Despite this, there is a significant variation in minimum wage rates across the country due to factors such as local cost of living.

In many states, the minimum wage has been set higher than the federal rate, with some levels set to increase in the future. For instance, Hawaii will raise its minimum wage to $14 in January, which is a 16.7% increase from the current $12 rate. The state has a plan to gradually increase its minimum wage to $18 per hour by 2028. This is the first time Hawaii has hiked its rate since 2018, when it was set at $10.10 per hour.

In 2024, Nebraska's rate will increase from $10.50 to $12, representing a 14.3% hike.

The rate for Maryland companies with 15 or more employees will rise from $13.25 to $15, representing a 13% increase.

In 2024, Delaware's minimum wage will increase from $11.75 to $13.25, representing a 12.8% rise.

Wage growth cools, but gains above pre-pandemic levels

The slowing wage growth in the U.S. labor market is impacting small businesses' ability to attract and retain top talent. Despite this, wages are still increasing, with job-stayers reporting a 5.7 percent year-over-year pay increase in October, according to ADP data. Meanwhile, pay growth for job-changers was 8.4 percent, ADP said.

The latest government nonfarm payroll report for October showed that average hourly earnings increased by 0.2% for the month, which was below the forecasted 0.3%, while the year-over-year gain of 4.1% was 0.1 percentage point above expectations. Despite the slowing growth, pay gains are still higher than the pre-pandemic levels of approximately 2% to 3%, according to ADP.

Some of the largest companies in the country, including Bank of America, are increasing the competition for hiring by raising their minimum wage. Bank of America recently increased its minimum wage to $23 an hour and aims to reach $25 an hour by 2025.

Where employers will look for the money

Small businesses are facing a difficult decision when it comes to increasing wages for their workers. While they want to treat their employees fairly, they must also determine where the additional funds will come from. Some may consider reducing benefits, hiring fewer workers, or raising prices for consumers. However, these actions can have broader implications for the business as a whole. According to Molly Day, vice president of public affairs at the National Small Business Association, small businesses are in a challenging position, especially when it comes to making significant wage increases.

Small business owners may have to choose between hiring one or two high school students instead of three for the summer due to low profit margins, according to Day.

Business owners must consider the advantages and disadvantages of various actions they can take to handle wage increases.

"We don't want to make changes in our business practices that will harm our employees and make them feel undervalued," stated Zachary Davis, co-founder and CEO of The Glass Jar, a farm-to-table restaurant group in Santa Cruz, Calif.

It is essential to communicate the reason for price increases to customers, as they may not appreciate it.

The long-term implications of higher pay

A recent survey from small business HR vendor Homebase revealed that 24% of respondents consider competitive wages as the most significant factor when choosing a workplace.

According to Leo Carr, executive president of The Elite Group, higher wages often result in happier employees, lower turnover, and increased productivity.

While small businesses may be able to sustain current wage growth, it's important to consider how it could impact the bottom line in the future, as it may not be sustainable in the long run, according to Carr.

Given the difficulty of finding good employees, many business owners have resigned themselves to the idea of paying more for workers, with Hall stating, 'They've given up on the idea that paying more for a workforce is a bad thing, now they're just saying, 'Give me a workforce.'