In this blog, we will go over how to navigate Ohio’s new minimum wage law and what your business needs to know to stay compliant and competitive in 2025.
The state minimum wage is scheduled to rise from $10.45 to $10.70 per hour on January 1, 2025, while the hourly rate for tipped employees will go from $5.25 to $5.35. This shift is driven by a 2006 constitutional amendment requiring automatic, inflation-based adjustments to the minimum wage. Although 25 cents might seem minimal, it can have real implications for your staffing costs, compensation structures, and overall compliance strategy.
Let’s break down the core details of this new law and address key steps to ensure your business is ready.
What’s Changing
Non-tipped employees
- 2024 rate: $10.45 per hour.
- 2025 rate: $10.70 per hour.
- Who it covers: Employees of businesses with annual gross receipts exceeding $394,000 per year (up from $385,000 in 2024).
Tipped employees
- 2024 rate: $5.25 per hour.
- 2025 rate: $5.35 per hour.
- Who it covers: Employees who customarily and regularly receive more than $30/month in tips. Employers can use a tip credit, provided the combined cash wage plus tips meets or exceeds $10.70/hour.
Small businesses and younger workers
- Small employers: If your business has annual gross receipts of $394,000 or less, you’ll follow the federal minimum wage of $7.25/hour.
- 14- and 15-year-olds: Must also be paid at least $7.25/hour.
These changes stem from Ohio’s constitutional amendment (II-34a), which links annual minimum wage increases to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). According to state data, the CPI-W increased by 2.4% from September 1, 2023, to August 31, 2024, which triggered the $10.70 and $5.35 rates for 2025.
Who’s Impacted By The 25-Cent Hike
On the surface, a quarter raise might not sound substantial – but it still makes a difference:
Directly affected workers
About 112,700 Ohioans earning below $10.70 will see an immediate pay increase.
Indirectly affected workers
Employers often adjust wages for staff making slightly above $10.70 to maintain equitable pay scales, potentially affecting another 200,000 employees.
Tipped employees
Roughly 97,700 tipped workers will be directly or indirectly impacted as the tipped rate jumps to $5.35/hour, plus any additional tip credit to reach the full minimum.
For small to midsize businesses (SMBs), these increases can influence everything from your bottom line to your competitive standing in Ohio’s labor market. Think about how a modest wage increase might help you retain talent or attract new hires, given that surrounding states may have their own wage adjustments, or none at all.
Why The Increase Matters
Keeping pace with inflation
Ohio is one of 20 states and D.C. that tie the minimum wage to inflation, aiming to preserve workers’ purchasing power. Prices have jumped by 22.7% in the past five years, though recent inflation rates have cooled to about 2.9%. This annual wage adjustment helps lower-income families cope with the rising cost of living.
Impact on family incomes
According to research, over 28% of Ohio families living below the federal poverty line will see a paycheck boost. It can be easy to underestimate how $0.25/hour adds up over a year, but for many low-wage workers, every cent counts, especially as they face rising housing, food, and transportation costs.
Potential ripple effects
Employees already earning slightly above $10.70 may expect a wage increase for fairness and morale. Failing to adjust could cause frustration or turnover. At the same time, these increases can strain payroll budgets if you haven’t planned ahead, highlighting the importance of forecasting labor costs well in advance.
Key Compliance Steps
- Evaluate gross receipts
Determine if your annual gross receipts exceed $394,000. If so, you must pay at least $10.70 (or $5.35 plus tips). If not, you’ll follow the federal rate of $7.25.
- Update your payroll systems
Make sure any software or platform you use for employee wages is prepared to automatically update hourly rates come January 1, 2025.
- Adjust pay scales where needed
Employees who earn just above $10.70 may expect an increase to maintain fairness. Review your internal pay structures or consult with an HR expert about how best to handle this.
- Revise tipped policies
If you use the tip credit, confirm that tips plus the new $5.35/hour combine to meet or exceed $10.70/hour. Keep accurate tip records to meet regulatory standards and prevent disputes.
- Overtime obligations
Remember, you must still pay time-and-a-half for hours exceeding 40 in any given week, unless you gross under $150,000 annually (Ohio’s threshold for certain overtime exemptions).
How GMS Can Help
Navigating wage hikes might sound straightforward – just pay the higher rate, right? But these changes often trigger a series of administrative hurdles, from updating payroll and revising tip policies to ensuring compliance for younger workers. That’s where Group Management Services (GMS) comes in:
- Expert HR guidance: GMS stays on top of changing minimum wage laws, payroll regulations, and other employment mandates, so you don’t have to. We’ll help you figure out compliance and coach you on any next steps.
- Integrated payroll solutions: GMS can help you avoid manual errors or outdated pay rates. Our payroll services adjust for new wage laws and maintain accurate records, so you can avoid penalties.
- Employee classification and documentation: If you’re unsure whether an employee qualifies as a “tipped” worker or need assistance with documentation, GMS can provide clarity and guidance.
When you partner with GMS, you gain a dedicated team that takes care of HR complexities, allowing you to focus on running your business. Contact GMS to streamline your payroll, ensure full compliance, and keep your business growing.