U.S. Minimum Wage Increase 2026: New Hourly Pay Rates

Many employers and workers will see changes to hourly pay in early 2026. This guide explains what to check, how to update payroll, and how to stay compliant with new hourly pay rates effective January 27.

U.S. Minimum Wage Increase 2026: What to expect

The phrase “minimum wage increase” covers different actions by federal, state, and local authorities. Some jurisdictions schedule annual increases or inflation adjustments that take effect in January, while others change rates on different dates.

Employers should confirm which rate applies to each worksite because federal, state, and local rules can overlap. When multiple rules apply, the highest applicable minimum wage must be paid.

Who sets new hourly pay rates?

• Federal government: sets a nationwide baseline. Employers must follow state or local rates when higher.
• State governments: often update rates yearly or through indexed increases tied to inflation.
• Localities (cities/counties): may set higher local minimum wages, or separate rules for small employers.

New Hourly Pay Rates Effective January 27: Employer action checklist

Whether you are an HR manager, payroll specialist, or small business owner, use this checklist to prepare for new rates effective January 27.

• Confirm new rates: check federal, state, and city labor department announcements for the effective date and exact rate.
• Audit affected roles: create a list of employees currently paid at or near the minimum wage.
• Update payroll systems: change base rates, pay rules, and overtime calculations before the first pay period that includes January 27.
• Notify employees: provide written notice of rate changes and new pay dates, following local posting requirements.
• Adjust budgets and pricing: estimate the monthly change in labor costs and plan for budget or pricing changes if needed.

Practical payroll steps

Make changes in the payroll system at least one pay period before the effective date. Run a test payroll to confirm gross-to-net calculations and tax withholdings remain correct.

• Update hourly pay codes and effective start date.
• Verify overtime thresholds; higher base pay can increase overtime costs for hourly employees.
• Check benefits tied to salary/wages, like earned leave accruals or contribution percentages.

Examples and calculations

These short examples show how to calculate the direct effect of a rate increase on a sample employee and on overtime.

Example 1: Straight hourly increase

Scenario: An employee works 40 hours per week. Their rate rises from $13.00 to $14.50 on January 27.

• Old weekly pay: 40 x $13.00 = $520.00
• New weekly pay: 40 x $14.50 = $580.00
• Weekly increase: $60.00, monthly roughly $240 (4-week month)

Example 2: Overtime effect

If the overtime rate is 1.5x the base rate, a rise in base pay raises overtime pay proportionally.

• Old OT rate: $13.00 x 1.5 = $19.50 per hour
• New OT rate: $14.50 x 1.5 = $21.75 per hour

For a 10-hour overtime week, OT pay increases from $195.00 to $217.50, an extra $22.50 for that week.

Small real-world case study

Cornerstone Cafe is a small coffee shop with 12 hourly employees across two locations. Management confirmed a local jurisdiction raised its minimum wage effective January 27.

• Action taken: audited employee wages, updated payroll codes, and notified staff two weeks before the change.
• Result: increased weekly payroll by approximately $350 across both locations. The cafe adjusted scheduling and slightly increased menu prices to offset the change.
• Outcome: staff retention improved after the raise, and the business recorded only a small dip in profit margin which recovered after two months.

Special rules to remember

Some workers have different minimum pay rules. Make sure you apply the correct standard for each job category.

• Tipped employees: check the tip credit rules and required employer contribution.
• Youth and training wages: some jurisdictions allow lower trainee rates for limited periods.
• Exempt employees: salaried employees may be subject to different minimum salary tests.

Where to confirm the new hourly pay rates

Always rely on official sources when confirming rates and compliance steps. Key places to check:

• U.S. Department of Labor (for federal guidance)
• Your state’s department of labor or workforce agency
• City or county labor offices for local ordinances
• Industry associations or payroll providers for implementation guidance

Final checklist before January 27

• Confirm which rate applies at each location and for each job.
• Update payroll systems and run a test pay run.
• Provide legally required notices and employee communications.
• Adjust budgets and monitor labor cost changes for the first quarter.

Following these steps will help your business implement the U.S. minimum wage increase in 2026 with minimal disruption. If you are unsure about legal obligations, consult a labor attorney or your state labor department for tailored guidance.