On Main Street, it’s time to prepare for the new minimum wage increases in 2024

In 2024, states will see more wage increases, and many Main Street businesses could feel the pinch.

Due to the hot labor market, not only are wages generally higher than last year, but new laws are also increasing minimum wages in many states. This can be a double whammy for small businesses already facing inflationary pressures. At the same time, companies know they have to pay more to attract top talent.

“It’s a very precarious situation that small businesses find themselves in,” said Steve Hall, vice president of economic development lending at the Local Initiatives Support Corporation, a community development financial institution.

Here are some of the biggest wage increases that will impact Main Street in the coming year:

California fast food workers

Starting April 1, 2024, California’s minimum wage will increase to $20 an hour for the state’s 500,000 fast food workers. In comparison, the average hourly wage for fast food workers was $16.21 in 2022 to a state press release announcing the changewhich cites a 2022 research report from think tank The Shift Project.

Companies like McDonald’s and Chipotle have already said they will likely raise prices to counteract the impact of the new law.

Chipotle Chief Financial Officer Jack Hartung told analysts on a company earnings call that the chain would likely increase prices in California by a “mid- to high-single-digit” percentage. And MC Donalds Chief Executive Chris Kempczinski told analysts he couldn’t quantify the exact amount, but price increases were likely.

This targeted increase in the food sector is independent of this California’s minimum wage increase, rising from $15.50 to $16 in 2024, an increase of 3.2%. Some cities and counties in California have higher local minimum requirements.

Other states where minimum wages will increase in 2024

Other states are raising the minimum wage in part to attract workers to those areas of the country, Hall said.

Currently 30 states and Washington, DCAccording to the National Conference of State Legislatures, they have a minimum wage that is higher than the federal minimum wage of $7.25 an hour. Still, there are wide variations in minimum wages across the country based on factors such as the local cost of living.

Some states have set the bar significantly higher than the federal rate, and in many cases levels are expected to rise in 2024 and beyond. Hawaii, for example, does wants to raise its minimum wage to $14 in January, 16.7% more than the current rate of $12. Last year, the state laid out a plan for its minimum wage to be $18 an hour by 2028. The state increased its rate in 2022 for the first time since 2018, when the minimum wage was set at $10.10 an hour.

Nebraska’s rate is also going in 2024 from $10.50 to $12, an increase of 14.3%.

Maryland’s tarifffor businesses with 15 or more employees, will increase from $13.25 to $15, an increase of 13%.

Minimum wage in Delaware rises to $13.25 in 2024 from the current $11.75, an increase of 12.8%.

Wage growth is cooling but is above pre-pandemic levels

Wage growth in the U.S. labor market has begun to slow as Federal Reserve interest rate hikes cool the economy. But wages are still generally rising, impacting small businesses’ ability to attract and retain top talent. Unemployed workers reported a 5.7 percent year-over-year pay increase in October, according to ADP data that analyzes the wages and salaries of nearly 10 million workers over a 12-month period. According to ADP, wage growth for job changers was 8.4 percent.

In the government’s latest non-farm payrolls report for October, average hourly wages for the month rose 0.2%, less than the 0.3% forecast, while the 4.1% year-over-year increase was 0.1 percentage points higher was in line with expectations. As growth has slowed somewhat, wage gains are still higher than before the pandemic, according to ADP, at about 2% to 3% growth.

Meanwhile, some of the country’s largest companies continue to put pressure on hiring competition, such as Bank of America, which last month raised its minimum wage to $23 an hour and is aiming for a minimum wage of $25 by 2025.

Where employers will look for the money

Employers want to treat their workers fairly, but they also need to figure out where the money to raise wages is coming from, said Molly Day, vice president of public affairs at the National Small Business Association. Some may cut benefits, hire fewer workers or, like major fast-food companies, raise prices for consumers. But these steps can have an impact on the overall business. “It’s a really difficult situation for small businesses, especially when it’s such a big jump,” Day said.

For companies with low profit margins, the impact could be even greater. Instead of hiring three high school students for the summer, they might decide to hire one or two. “I think this is a decision that a lot of small business owners have to make,” Day said.

In fact, business owners must weigh the pros and cons of the efforts they can make to accommodate wage increases.

“The last thing we want to do is make changes to the way we do business that negatively impacts our employees and makes them feel unappreciated,” said Zachary Davis, co-founder and CEO of The Glass Jar, a farm. Restaurant group with table setting in Santa Cruz, California.

However, customers don’t like it when you increase prices. Therefore, it is crucial to talk to them about the reason for the price increase. “We are not concerned with charging our customers more than they can afford, but we must adapt to wage increases,” Davis said.

The long-term effects of higher wages

Employees certainly value competitive wages. 24 percent of respondents said competitive wages were the most important factor when deciding where to work A current survey from HR provider Homebase for small businesses.

Higher wages generally lead to happier employees, lower turnover and higher productivity, said Leo Carr, executive president of The Elite Group, a professional development and training organization in Southfield, Michigan.

However, small businesses still need to consider what impact wage growth over time might have on the bottom line. It may be sustainable now, but “in the long run it may not be sustainable,” Carr said.

Nevertheless, many entrepreneurs are resigned to the idea of ​​paying their workers more because otherwise they won’t find good workers. “They have given up on the idea that paying more for the workforce is a bad thing,” Hall said. “Now they just say, ‘Give me workers.'”