2026 has brought many new employment laws that affect local business owners. Starting in January, following the passage of the Virginia Minimum Wage Trajectory (HB 1/SB 1), the minimum wage increased from $12.41 to $12.77. This marked the start of a series of minimum wage increases that will continue through 2028, with annual adjustments based on the Consumer Price Index beginning in 2029. For employers, these changes mean more than just paying employees more; the increase could mean rethinking payroll budgets, compensation structures, wage compression, tipped employees, and overtime practices. Preparing now for the financial and operational impact of minimum wage changes can help you maintain compliance and limit last-minute hassle.  Keep reading to learn what Virginia employers need to know about the upcoming minimum wage increases.

Understanding The Minimum Wage Increase

Virginia’s minimum wage has been set at $12.77 an hour since January 2026. Virginia’s minimum wage is established through an annual review and an inflation-based adjustment process. The Virginia Department of Labor and Industry calculates the adjustment each year using resources such as the U.S. Consumer Price Index, published by the U.S. Bureau of Labor Statistics. This means that the 2026 calculation was based on the 2025 minimum wage and the 2.9% increase in the Consumer Price Index.

However, the newly established minimum wage schedule lays out the wage increase over the next three years.

• January 1, 2027: Minimum wage increases to $13.75 per hour
• January 1, 2028: Minimum wage increases to $15 per hour
• January 1, 2029: Annual CPI-based adjustments begin

The scheduled increases allow employers to plan rather than adjust payroll at the last minute. Businesses should begin incorporating the higher wage requirements into their 2027 and 2028 budgets and consider how the changes could affect their overall compensation structures.

Who Does Minimum Wage Apply To?

Virginia’s minimum wage laws apply to virtually every employee in the commonwealth. Whether employees are part-time or full-time, employers should ensure that their wages comply with Virginia’s minimum wage laws. However, not every worker is necessarily subject to the same minimum wage requirements. Virginia law provides exemptions for certain employees and for specific seasonal, job-related, and other categories of workers. Because exemptions can be determined on a case-by-case basis, employers should review both Virginia and federal wage-and-hour requirements when determining which employees qualify for minimum wage exemptions. Businesses should evaluate their workforce classifications and compensation practices to ensure they apply the appropriate minimum wage requirements to each employee. 

What You Should Do to Prepare

If you have not already begun planning for changes to Virginia’s minimum wage, now is the time to do so. By planning now, you can prepare for rising labor costs and prevent last-minute adjustments that could strain your budget. Three key ways to prepare include:

• Building payroll increases into your budget: All business owners should account for the scheduled wage increases when developing payroll and operating budgets over the next few years. The minimum wage will increase to $13.75 per hour on Jan. 1, 2027, and $15 per hour on Jan. 1, 2028. Your business should consider how these changes could affect overall labor costs, including the impact of wages for employees who already earn above the minimum wage.
• Review possible wage compression: Businesses should also evaluate their compensation structures for potential wage compression, which can occur when minimum wage increases narrow the pay gap between entry-level employees and more experienced workers. As minimum wage increases, you may see a smaller differential between employee earnings. By reviewing now, you can determine if other wage adjustments are needed to maintain a competitive and fair pay structure.
• Audit your payroll and HR systems: Your systems may be among the most important to review as minimum wage changes take effect.Start by confirming that employee pay rates are accurate and that payroll systems are programmed to reflect the correct minimum wages starting on the first of the year. Businesses should also review related compensation materials, including offer letters, employee handbooks, and pay policies. It may be helpful to create an internal timeline of when key changes take effect and when updates should be made.

Other Wage Obligations to Review

If you have employees who are tipped or often work overtime, there are a few other key considerations that may require your review. Under federal law, employers may take a tip credit for qualifying tipped employees, allowing them to pay a direct cash wage of $2.13 per hour as long as the employees are making at least $10.64 in tips per hour. This means that the employees’ wages and tips combined equal minimum wage. If an employee’s wages and tips do not equal the applicable minimum wage, the employer must make up the difference. 

Overtime policies are also important to review. Under the Virginia Overtime Wage Act, covered employees who work more than 40 hours in a workweek generally must be paid overtime at one and one-half times their regular rate of pay, with some exceptions.

Key Takeaways

• Minimum wage increases are already in effect. Virginia’s minimum wage is currently $12.77/hour, increasing to $13.75 in 2027and $15 in 2028, with annual CPI-based adjustments beginning in 2029.
• Plan for higher labor costs now. Employers should build the increases into future budgets and review compensation structures for potential wage compression.
• Review payroll structure immediately. Businesses should audit payroll and HR systems, update compensation materials, and confirm which employees are covered or exempt under Virginia and federal law.
• Don’t overlook tipped employees and overtime. Employers should review tip practices and ensure that covered employees who work more than 40 hours receive proper compensation.