How do minimum wage increases affect overtime costs?
Overtime is typically based on an employee's regular rate, so when base pay rises, the time-and-a-half rate increases too.
2026 Restaurant Minimum Wage Guide
Overview
Minimum wage is one of those changes that seems "small on paper" but hits restaurants fast - because it touches every hourly role, every labor target, and every payroll run. Minimum wage rates increased in multiple states in 2026, with many updates taking effect on January 1, 2026. For restaurants, these changes matter immediately because hourly pay rates are the foundation for staffing costs across front-of-house and back-of-house roles. Even modest increases can raise total labor spend over a full year, while larger jumps can quickly change hiring budgets and day-to-day labor targets.
California
California's statewide minimum wage increased to $16.90 per hour on January 1, 2026, up from $16.50 (a $0.40 increase). For restaurants, this change is straightforward in concept - raise the base hourly rate - but the real work is making sure the rate is applied correctly across roles, locations, and pay practices so there are no accidental underpayments.
The first step is confirming who must be updated. Any hourly, non-exempt restaurant employee paid at or near the minimum wage floor needs to be moved to at least $16.90/hr for hours worked on and after the effective date. That includes part-time staff, on-call staff, and employees who rotate between roles. If the restaurant uses different job codes (host, cashier, server support, line cook, dishwasher), those job codes should be reviewed one by one to ensure the new floor is reflected everywhere the payroll system calculates regular pay.
Next, restaurants should review wage ladder and compression risk. A $0.40 increase can still create internal pay equity issues - especially for "step above minimum" positions like shift leads, trainers, or experienced line cooks who were previously only slightly above the floor. If new hires rise to $16.90 and experienced staff stay flat, owners often see turnover pressure or morale issues. The most practical approach is to identify roles that are positioned "X cents above minimum wage" and decide whether they should maintain that gap in 2026 (for example, keeping leads at a consistent premium above base).
Finally, California operators should treat the update as a system-and-process check, not only a number change. Rate changes should be reflected consistently across - payroll rate tables, onboarding offer templates, internal wage sheets, and manager-facing labor tools (like staffing guides and labor target dashboards). If the restaurant operates in multiple cities or counties, it's also important to verify whether any local minimum wage is higher than the state floor and ensure the location-based override is correctly applied for employees working in those jurisdictions.
The Smarter Choice for Maximizing Your Financial Potential
Streamline Your Restaurant's Finances with Altametrics!
Washington
Washington's statewide minimum wage increased to $17.13 per hour on January 1, 2026, up from $16.66 (a $0.47 increase). For restaurants, Washington is a state where the wage floor is high enough that even small increases can meaningfully shift weekly labor dollars - especially in operations with large hourly headcount, extended hours, or multiple dayparts.
Start by applying the rate change consistently across all hourly, non-exempt roles that are paid at or near the minimum. It's common for restaurants to maintain different pay rates by position (dish, prep, line, cashier, host, expo) and to store those rates in multiple places - payroll, scheduling, hiring templates, and sometimes even POS labor reporting. If any of those systems lag behind the new rate, restaurants can end up with mismatched labor reporting or, worse, a paycheck that reflects the old wage for hours worked after the effective date.
Next, Washington owners should anticipate how a higher base rate changes overtime costs and staffing decisions. When the base rate rises, overtime becomes more expensive immediately because time-and-a-half is calculated from the new regular rate. For restaurants that rely on a small group of high-hour performers to "save the schedule," this can create a rapid spike in payroll. A practical response is to review which roles are most likely to cross overtime thresholds, then adjust staffing coverage so overtime is planned - not accidental.
Washington operators should also review pay band spacing. A $0.47 increase can compress pay bands if a restaurant has historically set "starter rates" only slightly below experienced team members. If new hires move up, it may be necessary to adjust rates for trained staff, key closers, openers, or shift leaders to preserve internal progression. Restaurants don't always need across-the-board raises, but they do need a deliberate approach so that the wage ladder still makes sense after January 1.
Finally, because restaurants often have employees working across different sites, owners should confirm that the correct wage is applied based on where the work is performed. If a business has units in multiple Washington jurisdictions, it's worth double-checking whether any city or local rules require a higher minimum than the statewide floor and ensuring the correct location-based rate is used for each shift.
Connecticut
Connecticut's minimum wage increased to $16.94 per hour on January 1, 2026, up from $16.35 (a $0.59 increase). For restaurants, a change of this size often triggers two immediate priorities - making sure every eligible employee is moved to the new floor on time, and rechecking the broader wage structure so the operation doesn't unintentionally flatten pay differences between new hires and experienced staff.
The first operational step is confirming that the new rate is applied to all hours worked on and after January 1, 2026. Restaurants commonly run into issues when pay rates are stored in multiple places - especially if some employees have position-based rates, some have negotiated rates, and others are tied to default wage tables. Any "default minimum wage" field should be updated, but owners should also validate that it actually feeds every job code and every pay rule the restaurant uses. This matters most for employees who rotate roles, switch locations, or are occasionally assigned a secondary job code that may still be mapped to an old rate.
Connecticut's increase also raises the likelihood of wage compression in restaurants that use small "step-ups" above minimum wage to reward tenure or skill. A $0.59 rise can narrow the gap between entry-level roles and trained positions like openers, closers, and station leads. If the restaurant's pay ladder is built around a consistent differential (for example, "kitchen trainers earn $1.00 more than base" or "shift leads earn $1.50 more than base"), owners should review whether those differentials still hold after the new minimum takes effect. When the wage ladder becomes unclear, restaurants often see frustration around promotions and retention - particularly among high performers who expect their pay to reflect added responsibility.
Another practical impact is budgeting for the full cost of the increase beyond the hourly rate itself. Higher base wages typically push up total payroll through wage-related taxes and payroll burdens, and they can increase the cost of extending shifts or covering callouts. Restaurants that closely track labor percentage should update their weekly labor targets based on the new wage floor rather than "absorbing" the difference and hoping it evens out. Even a small miss repeated over multiple weeks can create a noticeable variance by the end of the month.
Arizona
Arizona's minimum wage increased to $15.15 per hour on January 1, 2026, up from $14.70 (a $0.45 increase). For restaurants, Arizona's annual changes can feel predictable, but the risk is treating them as "routine" and overlooking where wage errors actually happen- role switching, location differences, and payroll systems that don't update every pay rule the same way.
The first priority is making sure every hourly employee who is paid at or near the minimum is moved to at least $15.15/hr for all hours worked on and after the effective date. That includes part-time staff, seasonal hires, and employees who work intermittent shifts. Restaurants should also review any multiple job codes per employee (for example, a team member who hosts on weekdays and runs expo on weekends). If one job code rate is updated and the other isn't, underpayments can slip through even when the "main rate" looks correct.
Next, Arizona operators should update their labor targets and staffing assumptions. A $0.45 increase may not seem dramatic per hour, but it compounds quickly across a week of coverage - especially for restaurants that run long operating hours or rely on higher headcount during peak periods. The practical move is to recheck the schedule with the new base rate and identify where small coverage inefficiencies add up- overlapping shifts, slow daypart overstaffing, or kitchen prep blocks that could be tightened with better production planning.
Finally, restaurants should look at wage ladder spacing. If the business previously paid key positions only slightly above minimum - like trainers, closers, or strong line cooks - the increase can compress differentials and create retention pressure. Owners don't always need a full wage restructure, but they should decide intentionally which roles must remain a clear step above entry pay. Treating the 2026 update as both a payroll change and a pay-band check helps prevent avoidable turnover and payroll rework later in the year.
Colorado
Colorado's state minimum wage is $15.16 per hour in 2026, up from $14.81 (a $0.35 increase) where no higher local rate applies. Colorado also lists a 2026 "with tip credit" wage of $12.14/hr in situations where tip credit is allowed and there is no higher local wage. For restaurants, Colorado is a state where wage compliance is less about the math and more about getting the right rate for the right location and role - every time.
The biggest operational risk is missing local minimum wage overrides. Many restaurants operate in areas where the city or county minimum wage is higher than the state floor. If payroll is configured with only the statewide rate and managers schedule employees across different worksites, the restaurant can accidentally underpay even when it "updated to 2026." The cleanest approach is to maintain a location-based wage table inside payroll and scheduling, with each store (or job site) mapped to the correct minimum. If staff work across locations, hours should be coded by the worksite so the correct rate applies to each shift.
The second risk area is mismanaging tipped versus non-tipped classifications when using a tip credit reference. Restaurants should verify which roles are treated as tipped, how tips are tracked and reported, and whether the system properly reconciles that the employee's total compensation meets minimum wage requirements. Confusion tends to show up with hybrid roles (server who also does prep), support roles that receive pooled tips, or shifts that include both tipped and non-tipped tasks.
Finally, Colorado's increase can contribute to wage compression, especially where restaurants keep entry rates close to the minimum. Reviewing pay bands for leads, trainers, and experienced BOH roles helps keep progression clear. In Colorado, the best 2026 "wage update" is a process- confirm local rates, lock rates to locations, validate tipped rules, and audit job codes so every hour is paid correctly.
Hawaii
Hawaii's minimum wage increased to $16.00 per hour on January 1, 2026, up from $14.00 - a $2.00 jump. For restaurants, a step-up of this size changes payroll math immediately. It's not only the base rate that rises; the increase compounds across every staffed hour, making scheduling accuracy, role coverage, and pay structure decisions far more important than they were at the prior floor.
The first action item is applying the new rate consistently across all hourly roles that were previously clustered near the old minimum. Restaurants should review every job code - FOH, BOH, and support - because wage changes often get applied to the "main" hourly rate but missed in secondary roles or cross-trained assignments. Any employee working multiple positions should have each applicable rate reviewed so the January 1 shift lines don't default back to outdated pay.
Next, Hawaii operators should expect wage compression to show up quickly. When entry-level roles increase by $2.00, positions that rely on skill, speed, or responsibility - like senior line cooks, key holders, shift leads, and trainers - can suddenly feel underpaid relative to their contribution. The practical fix is to recheck pay bands and decide where the restaurant will preserve spacing. Some operations update a few critical roles first (leads and hard-to-fill kitchen roles) to protect retention, then revisit the broader ladder later.
A large minimum wage increase also forces a tighter look at staffing patterns. Restaurants that previously "added an extra pair of hands just in case" may find that small inefficiencies now cost real dollars each week. Reviewing daypart coverage, staggered start times, and closing labor can help offset the increase without cutting service quality. The 2026 change in Hawaii is best treated as a wage update plus an operations reset- update rates, protect key roles, and run the schedule with sharper labor standards.
New York
New York's minimum wage remains tiered by region, and the 2026 increase took effect on January 1, 2026. The minimum wage rose to $17.00 per hour in New York City, Long Island, and Westchester, up from $16.50 (a $0.50 increase). In the rest of New York State, the minimum wage increased to $16.00 per hour, up from $15.50 (also +$0.50). For restaurants, the complexity isn't the size of the increase - it's the operational risk of applying the wrong regional rate, especially when employees move between locations or pick up shifts outside their "home" store.
The first step is ensuring payroll is set up with region-based minimum wage rules. A restaurant group operating in multiple New York regions should not rely on a single default rate. Instead, each location should be mapped to the correct regional wage floor, and that mapping should flow into payroll calculations. If managers manually adjust rates or override pay for certain shifts, it becomes easy to introduce inconsistency - particularly during busy scheduling weeks when employees are borrowed between stores.
Next, restaurants should establish a clear method for paying employees who work in more than one region. If an employee works a shift in NYC one day and a shift "upstate" later in the week, the safest approach is to ensure the hours are tied to the location where the work was performed so the correct minimum applies per shift. This requires clean job-site coding and accurate timekeeping tied to the right store, rather than paying all hours at a single blended rate that may fall below the required floor for higher-wage regions.
Finally, New York's tiered structure can create internal pay equity challenges. Employees may compare wages across stores and feel pressure to transfer to higher-rate regions. Restaurants can reduce friction by maintaining consistent pay bands within each region and clearly communicating that wages are determined by the location-based minimum wage requirements. In 2026, New York compliance is mainly about clean setup- correct regional mapping, disciplined cross-location scheduling, and pay rules that follow the worksite every shift.
New Jersey, Michigan, Minnesota
New Jerseyincreased its minimum wage to $15.92 per hour on January 1, 2026, up from $15.49 (a $0.43 increase). Even when the change is under fifty cents, restaurants can still run into problems if rates are stored in multiple systems or if certain job codes lag behind the update. The most common miss happens when a restaurant updates the "default" hourly wage but forgets secondary rateslike training pay, orientation pay, or a separate rate used for support shifts.
Michigan increased to $13.73 per hour on January 1, 2026, up from $12.48 (a $1.25 increase). That larger step-up is more likely to trigger wage compression, especially in restaurants where experienced staff were previously paid only a small premium above starting wages. Owners should expect a need to review pay bands for hard-to-replace rolesstrong line cooks, prep leads, and shift leaders - because the gap between new hires and tenured employees can close quickly after a $1.25 increase.
Minnesota adjusted to $11.41 per hour on January 1, 2026 through an inflation-style update and also maintains a 90-day training wage for workers under 20. For restaurants, the compliance risk here is not the headline number - it's incorrect setup for age-based and time-limited wage rules. If a restaurant uses the training wage, it needs a reliable process to ensure (1) the employee's age is accurately captured, (2) the training wage is applied only within the allowed window, and (3) the rate automatically transitions to the standard minimum when the 90 days ends. Without tight controls, restaurants can unintentionally underpay after the training period or apply the wrong rate to the wrong employee.
Across these three states, the practical focus is consistency - update all job codes, protect key roles from compression, and make sure any training-wage rules are time-bound and automatically enforced.
Experience a Hassle-free Payroll Processing
Streamline Your Payroll Process with Altametrics
Must-Read Content
Scheduling rules
2026 Restaurant Scheduling Rules Update
Labor compliance
Labor Compliance for Restaurants
Tip pooling law
Restaurant Tip Pooling Law in 2026
Frequently Asked Questions
Should menu prices change when minimum wage increases?
Sometimes. Many restaurants evaluate pricing, staffing models, and productivity first, then decide if pricing adjustments are needed to protect margins.
How often should restaurants review minimum wage changes?
At minimum - before January 1 and mid-year, plus regular checks if you operate in cities with frequent local updates.
What records should restaurants keep in case of a wage dispute or audit?
Keep a clear rate history (effective dates), timecards, location assignments, and any documentation supporting the rate applied for each period.
What's the biggest payroll mistake restaurants make during a minimum wage increase?
Updating only the "default" hourly rate but missing secondary job codes, training rates, or cross-trained roles that still point to an old rate.
