Minimum wage rates for most employees in Minnesota will increase on January 1, 2018. Both the state of Minnesota's automatic minimum wage hike and a new minimum wage ordinance for workers in the city of Minneapolis will take effect on that date.

Minnesota State Minimum Wage

The statewide minimum wage will increase by $.15 per hour for most employees.  The minimum wage rate for a "large employer," which is defined as an employer with an annual gross revenue of $500,000 or more, will go from $9.50 per hour to $9.65 per hour. For "small employers," those with annual gross revenues of less than $500,000, the minimum wage will increase from $7.75 to $7.87 per hour.

A 2014 amendment to the Minnesota Fair Labor Standards Act provided for automatic increases based on the rate of inflation to be calculated beginning in 2018. The commissioner of the Minnesota Department of Labor and Industry set the effective date for the new minimum wage rates as January 1, 2018.

Minneapolis Minimum Wage

Under a 2017 ordinance passed by the Minneapolis City Council, employers that have at least 100 employees and have employees who perform work within the city of Minneapolis must begin to pay their employees at least $10.00 per hour beginning January 1, 2018.

The Minneapolis ordinance defines "large employers" and "small employers' differently than the state law does. Under the city law, a large employer is one that has 100 or more employees. Large employers that have a physical location in the city of Minneapolis or have employees who perform at least two hours of work in a workweek in the city are required to begin paying the increased minimum wage for work performed in Minneapolis on January 1, 2018. Further increases to the Minneapolis minimum wage will take effect on July 1, 2018, when the rate will move to $11.25 per hour for large employers. Additional increases of $.75 per hour will take effect each July 1 in subsequent years until the minimum wage for large employers reaches $15.00 per hour on July 1, 2022.

Small employers (those with fewer than 100 employees) will see their minimum wage increase on a delayed basis. The first increase for these employers will come on July 1, 2018, when the minimum wage rate will rise to $10.25 per hour. Additional $.75 per hour increases will take effect on each subsequent July 1 and will reach the $15.00 per hour rate on July 1, 2024.

A court challenge to the ordinance filed by the Minnesota Chamber of Commerce argued unsuccessfully that the ordinance was preempted by state law, but a district court in Hennepin County denied a motion for a temporary restraining order, allowing the ordinance to go into effect as scheduled. An appeal of the district court's order is expected to be taken up with the state's appellate courts, but the ordinance will become effective pending the outcome of the appeal. In effect, the city's minimum wage ordinance supplements the state law for many employers—even some that do not have a physical presence in the city of Minneapolis.

A Look Ahead: Pending Court Actions and the 2018 Legislative Session

Minnesota employers will recall that the Minneapolis Sick and Safe Time Ordinance was challenged in court earlier in 2017 and was limited by the courts, so far, to employers that have a physical presence in the city of Minneapolis. That case is now pending in the Minnesota Supreme Court, which is expected to hear arguments in the case in early 2018 and issue a final ruling by early summer of 2018.

Also, the Minnesota Legislature will return to session in February of 2018 and is expected to once again consider a bill to preempt all municipal or other local laws dealing with the minimum wage, safe and sick time, and other types of employer-employee regulation. The preemption bill was a top priority for the Republican-controlled legislature in the 2017 session, but it failed to pass in the waning days of the session.

In 2018, however, there may be greater impetus for the legislature to consider a preemption bill, as more Minnesota cities have passed or are considering similar ordinances. For example, the city of Duluth is considering a safe and sick time ordinance. Other cities in the state have similar measures under consideration, and if passed, they would create a hopscotch pattern of legal requirements to be navigated by employers.

For now, however, Minneapolis employers will be required to pay a higher minimum wage than that required of employers in other cities in the state, as well as provide safe and sick time benefits. Many employers, particularly those with employees who are represented by unions, may find the new law of little consequence immediately, but the annual increases that will begin on July 1, 2018, may be difficult for some employers to absorb.