The $15 minimum wage finally becomes America’s dominant legal wage floor

On January 1, 19 states raised their minimum wages, with six crossing the $15 threshold for the first time: Arizona, Colorado, Hawaii, Maine, Missouri, and Nebraska. The increases will add an estimated $5 billion to paychecks for 8.3 million workers in 2026. The gap between high-minimum and low-minimum states is no longer an outlier phenomenon. West Hollywood’s minimum wage stands at $20.25, while workers in states without higher minimums earn the federal floor of $7.25 for comparable work. Washington state leads at $17.13, and several municipalities exceed $21 an hour, including Tukwila at $21.65.

“Only 1% of the hourly workforce and 0.5% of all U.S. workers are paid at or below minimum wage – and that includes tipped workers, who often earn far above minimum wage,” says Lauren Thomas, Deel’s founding economist. “Since 2019, increases in wages amongst low-wage workers have been driven by both minimum wage increases and tighter labor market conditions.”

Multi-state operations face new compliance math

The two-tier structure creates immediate compliance challenges for multi-state employers. California and Washington tie their exempt (exempt from overtime requirements) salary thresholds directly to minimum wage rates, which means those thresholds rise automatically with each wage increase. California now requires employers to pay $70,304 annually to qualify workers for white-collar overtime exemptions, while Washington mandates $80,164. California’s exempt threshold is nearly double the federal requirement of $35,568, creating a $34,736 gap that multi-state employers must navigate for the same positions. Multi-state retailers, restaurant chains, and service companies navigate different wage floors, different exemption cutoffs, and different overtime rules across their footprint.

The $5 billion in direct wage increases represents only the most visible cost. Wage compression forces employers to recalibrate pay structures beyond entry-level positions. When Washington raises its minimum wage to $17.13, shift supervisors who previously earned $18 find themselves in compressed pay bands with the workers they manage. Employers must either accept narrower differentials between job levels or raise wages across multiple tiers to preserve historical pay spreads. These adjustments cascade through benefits eligibility thresholds, overtime calculation methods, and pension contribution formulas tied to compensation levels.

19 states now index their minimum wages to inflation, guaranteeing annual increases based on the Consumer Price Index. States without automatic adjustments can freeze their minimums for extended periods. The federal minimum wage has remained unchanged since 2009. That’s more than 16 years without an increase, the longest stretch since the wage floor was established in 1938. The result is a widening real-value gap between indexed and non-indexed jurisdictions, with purchasing power in $7.25 states eroding annually while $15+ states maintain or expand their wage floors.

Geography rewrites wage strategy

The geographic distribution of minimum wages now affects operational decisions beyond traditional cost-benefit analyses. Border counties experience wage arbitrage dynamics, as workers in low-minimum states increasingly commute across state lines to access higher-paying positions. Remote work adds another layer of jurisdictional complexity. An employee working remotely from Missouri for a Texas-based employer must be paid at Missouri’s $15 minimum wage, not Texas’s $7.25, because the work is performed in Missouri regardless of where the company maintains its headquarters.

The $15 threshold’s expansion reflects a clear national pattern. Southern and Mountain West states concentrate at the $7.25 federal floor, while coastal and upper Midwest states cluster at $5 or significantly higher. This geographical split correlates with regional differences in industry composition, cost of living, and state legislative priorities. The U.S. no longer operates a single national labor market with consistent baseline wages. Instead, it functions as two distinct markets with fundamentally different assumptions about minimum compensation.

More workers now live in states with $15 minimum wages than in states at the federal $7.25 floor, but this doesn’t resolve longstanding debates about minimum wage effects on employment levels, consumer prices, or small business viability. What the data does establish is that uniform national wage strategies are no longer viable for employers operating across multiple states. Thomas says the legal minimum wage is “binding on very, very few workers nowadays – if you want to attract workers at the low end of the market, don’t expect the federal minimum wage to be realistic. Especially if you want anyone 25 and older.” The relevant question for compensation planning is no longer what the minimum wage is in general, but which specific minimum wage applies to each employee based on their work location.