The 'Fair Wage Act' Swaps National Minimum Wage for Local Rates Based on Cost of Living

The Fair Wage Act of 2025 completely overhauls how the federal minimum wage is set, tossing out the single national rate in favor of a system tied directly to local cost of living. The Secretary of Labor will now calculate the minimum wage based on where an employer is located—either in a Metropolitan Statistical Area (MSA) or a state’s nonmetropolitan portion (Sec. 2). This new rate is calculated using 40% of the national average wage, multiplied by a local cost-of-living factor called the Regional Price Parity (RPP). Crucially, this 40% base will increase to 50% over the next two years, meaning the minimum wage floor is set to rise significantly in many areas, particularly those with a high cost of living.

Your Paycheck vs. Your Zip Code

For most people, the biggest change here is that the minimum wage will finally acknowledge that living in Manhattan costs a lot more than living in rural Oklahoma. The bill uses RPP data from the Bureau of Economic Analysis (BEA) to set five different tiers of wage adjustments. If your area’s cost of living is 10% or more above the national average (RPP 110+), the adjustment percentage used in the calculation jumps to 115%. On the flip side, if your area is 10% or more below the average (RPP < 90), the adjustment percentage drops to 87.5% (Sec. 2). This means that if you work in an expensive city, your minimum wage is going up faster and higher than if you work in a lower-cost area. The good news for everyone is that five years after implementation, the minimum wage for any area can’t drop below the rate set during the previous three-year period, offering some stability against sudden economic downturns.

The Tipped Wage Tightrope

The changes for tipped employees are significant and potentially tricky. Currently, employers must pay a minimum cash wage before tips. This bill changes that minimum cash wage to 30% of the new, regionally determined standard minimum wage (Sec. 3). For example, if the standard minimum wage in a high-cost city ends up being $18 an hour, the employer must pay the tipped worker $5.40 an hour in cash. While this is an increase for many, the guaranteed cash amount is now explicitly tied to the regional rate. This provision means that tipped workers will be even more reliant on customer gratuities to reach a livable wage, especially if the new regional minimum wage doesn't climb as high as expected in their area.

Changing the Rules for Younger Workers

If you’re a business owner who hires teenagers or a young person looking for their first job, pay attention to the changes in the subminimum wage rules. Previously, employers could pay a lower rate—$4.25 an hour—to new hires under 20 years old for their first 90 days. This act lowers the age limit for that subminimum wage from under 20 to 18 years old or younger (Sec. 4). This means that 19-year-olds are now guaranteed the full regional minimum wage right away. However, the calculation for the younger workers’ subminimum wage is also changing: it will now be set at two-thirds (2/3) of the area’s standard minimum wage, replacing the old fixed $4.25 rate. Depending on the region, 2/3 of the new standard rate could be higher or lower than the old $4.25, creating immediate winners and losers among the youngest workers.