The 2025 Minimum Wage Hikes: What HR Professionals Need to Know

Get ready for changes—not scenic hikes in the mountains, but significant increases in state minimum wages. As 23 states prepare to implement new minimum wage levels in 2025, HR professionals must navigate a complex and evolving compensation compliance landscape.

“Most HR teams are accustomed to minimum wage adjustments, but recent years have introduced more frequent changes, new laws, and strategies to reach higher wage targets,” said Erika Johnson, director of work, rewards, and career at Willis Towers Watson (WTW).

States like California, New York, and Illinois will see wage increases taking effect on January 1, while others, like Alaska, Oregon, and Florida, will implement changes later in the year. Michigan plans two adjustments early in 2025. With these shifts on the horizon, here’s what HR teams need to prepare for:

1. Managing Wage Compression

When minimum wages rise, employees in lower-paying roles may earn close to or even the same as those in higher positions, causing wage compression and dissatisfaction among senior employees.

“While the initial reaction might be to raise wages across the board, this approach can become costly,” said Tom Wardrip, managing director at Gallagher. Instead, he recommends narrowing the pay grade structure for lower-earning roles. For instance, reducing the difference between two pay grades from 7% to 5% can help control costs while addressing compression.

2. Anticipating Secondary Effects

Wage hikes can lead to increased costs in pay-based benefits, such as health insurance premiums and retirement matches. While these may not apply to all minimum wage workers, HR teams should still conduct a compliance review to assess potential impacts and ensure timekeeping and meal/rest period policies are up to date.

3. Monitoring Market Trends

In sectors with high turnover, many employers have already raised their minimum wages to stay competitive. HR teams should keep a close eye on what competitors and neighboring jurisdictions are offering.

For instance, Washington’s unincorporated King County will raise its minimum wage to $20.29 in January 2025, while neighboring Seattle will increase it to $20.76. Such increases can create a ripple effect, influencing pay rates even in areas with lower state minimum wages. “Wages don’t care about borders,” Johnson noted. “If nearby areas are paying significantly more, employers will feel pressure to compete.”

Prepare for 2025 and Beyond

With minimum wage changes on the horizon, now is the time to strategize. From addressing wage compression to keeping pace with market shifts, proactive planning will help HR teams navigate these challenges effectively.