Vermont’s minimum wage laws take a unique approach, featuring standard and tipped rates that are much higher than federal requirements. Also, the state automatically raises these numbers every year to keep pace with inflation, making payroll a moving target for employers.
What you’ll learn
What you’ll learn
Key takeaways
- Vermont’s minimum hourly wage of $14.42 is nearly twice the federal wage and increases annually by an amount tied to the Consumer Price Index (CPI)
- Tipped employees are only required to be paid $7.21 an hour — half the standard minimum wage — but their tips must make up for the difference
- Vermont employers are required to keep records of time worked and wages paid for two years and tip reports for three years
- SMBs should factor annual minimum wage increases into their long-term budgeting
- Payroll software can help SMBs stay legally compliant and financially stable
The Vermont Department of Labor strictly enforces these minimum wage rates — noncompliance can lead to severe civil or criminal penalties. Here is everything you need to know about Vermont’s wage rules to keep your payroll fully compliant.
Vermont minimum wage increases for 2026
As of January 1, 2026, the minimum wage in Vermont is $14.42 an hour. This affects all employers who employ two or more employees. There are a few exceptions for taxi drivers, agricultural workers, full-time high school students, and others. Most Vermont workers, including part-time employees, are covered by this rule.
Under state law 21 V.S.A. § 384, Vermont must increase its minimum wage every year by either 5% or the percentage change in the Consumer Price Index (CPI), whichever is lower. In 2026, the increase was 2.9% over 2025’s minimum wage, or 41 cents. In 2025, the Vermont standard minimum wage was $14.01, up from $13.67 in 2024.
Tying the state’s minimum wage to the CPI helps working Vermonters handle inflation-driven price increases. It also means SMBs must absorb frequent wage increases. This is true even for tipped employees.
Rules for tipped employees in Vermont
Any adjustments in the standard minimum wage also affect the basic wage rate for tipped employees. In 2026, the basic wage rate for tipped employees in the Green Mountain State is $7.21, or 50% of the standard minimum wage. This rate is meant for employees in the restaurant and tourism industries who receive more than $120 monthly in tips.
The difference between the current minimum wage and the basic wage rate is referred to as the “maximum tip credit.” Vermont employers have an obligation to ensure that the basic wage rate, plus the tips the employee earns, brings their pay up to at least $14.42 an hour. If the money earned by tips does not bring the employee to or above minimum wage for all hours worked, the employer must make up the difference.
Each week a tipped employee must submit a signed report to their employer which lists the tips they’ve received over the previous seven days. The employer must retain these reports for three years. Check out our guide to tipped wages to learn more about tip credits, how to ensure that your employees are compensated correctly, and how to keep your business compliant.
How Vermont calculates annual wage adjustments
Vermont’s minimum wage is much higher than the federal minimum wage of $7.25 an hour and $2.13 for tipped minimum wage. Why is Vermont’s minimum wage so much higher?
The federal minimum wage sets the lowest rate of pay allowed in the US. However, states are allowed to set their own rates that are higher than the federal minimum. States consider several factors when setting a minimum wage, including cost of living, the political situation, and the make-up of the economy.
Every year, Vermont automatically adjusts its minimum wage by using the CPI. The CPI measures price changes by looking at consumer goods and services, including housing, food, utilities, and medical care. In most years, the cost of these goods increases by a small amount.
For more information on how Vermont’s wage laws compare to other states, check out our minimum wage by state guide.
Compliance and recordkeeping requirements for Vermont employers
The minimum wage laws in Vermont give employers several responsibilities, including posting legally required labor posters and keeping accurate pay records. Under state law, for at least two years, employers must keep records of the hours worked and wages paid. They are also not allowed to withhold wages due to an employee failing to turn in a time sheet or timecard.
The Vermont Department of Labor investigates claims against employers and takes enforcement seriously. Employers who have broken minimum wage laws can face up to two years of back wage liability, plus additional penalties. Employers also face potential civil actions.
Unlike other states, municipalities in Vermont are forbidden from setting their own minimum wage laws. This means the minimum wage of $14.42 is the same across the state.
As for overtime, most employers must pay employees at least 1.5 times their standard rate of pay for hours worked over 40 in a week. To see how Vermont stacks up against other states, check out OnPay’s state overtime laws summary. Vermont’s wage laws can be complicated, so it’s important to stay up to date on any changes.
Small business support
“I am a microbusiness with only five employees, but even their varying hours were getting too labor-intensive to be sure I was doing the math correctly. OnPay was my perfect solution. I love the instant access to chat help! And any questions I have are answered right away! I also love the employee W-2s and the fact that all tax requirements are taken care of!”
— Sarah Breitbarth, Pins and Needles Alterations
Managing your Vermont small business’s wage changes
Vermont SMBs have payroll requirements that increase every year. Here are a few things business owners can do to stay on top of all legal requirements:
- Plan for wage increases: Vermont’s minimum wage increases every year, according to the CPI. Plan for annual inflation in wages, just like you would plan for inflation in other parts of your budget.
- Keep good records: Vermont employers are required to keep most files for a minimum of two years.
- Be proactive: Keep your team informed about wage changes and address any issues as soon as they come up.
- Update payroll systems: Use payroll programs that make it easy to update rate changes when they happen.
Master Vermont’s minimum wage updates
Managing payroll in Vermont means staying ahead of a constantly moving target. Between tracking the state’s standard rate of $14.42 per hour , calculating the 50% tipped wage, and preparing for mandatory annual inflation adjustments, keeping your business compliant takes ongoing dedication. You must also manage strict, multi-year recordkeeping requirements to avoid penalties from the Department of Labor.
But you don’t have to manually tackle these moving parts. OnPay takes the friction out of payday by automating your wage calculations and seamlessly handling your compliance updates. Pass the heavy lifting to a reliable HR and payroll platform so you can spend less time with the books and more time growing your business.
Take a tour to see how easy payroll can be.
Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.