The States Where Small Businesses Pay the Highest Wages

The minimum wage rose in 22 U.S. states at the start of 2024, with 38 counties and cities implementing further increases. However, many small companies were already paying above these new limits to counter staff shortages following the pandemic.

“Really tight labor markets are better for people at the bottom. When times are really good, they catch up,” David Neumark, an economics professor at the University of California, told the Wall Street Journal. “Wages got far ahead of minimums in many places.”

Currently, many small businesses looking to attract the brightest talents are paying above the going rate in a tight labor market. Job markets and economic conditions vary from state to state — and even between metros.

So, where are small businesses paying the most to fill their roster?

To find out, data analysts at OnDeck analyzed U.S. Census Bureau data for businesses with fewer than 500 employees. We ranked them by average annual salary, calculating this as the total annual payroll divided by the number of employees.

Key Findings

• Massachusetts small businesses offer the highest wages, at an average annual salary of $72,151.
• California ($67,237) and New York ($66,924) small businesses offer the second– and third-highest average annual salaries.
• Mississippi small businesses offer the lowest average annual salary ($39,310).
• San Jose-Sunnyvale-Santa Clara in California is the metropolitan area where small businesses offer the highest average annual salary ($96,985).

Massachusetts is the State Where Small Businesses Pay the Highest Wages

Massachusetts businesses with fewer than 500 employees pay salaries averaging $72,151, making it the best state to get paid by a small business. The high cost of living and housing in Massachusetts is one factor that has driven wages up. However, small businesses are better positioned to answer this need due to low local business taxes relative to other states. Only five states have a higher minimum wage than Massachusetts, where the $15 wage floor is more than double the federal minimum wage of $7.25 per hour.

Small businesses in California ($67,237) and New York ($66,924) pay around $5,000 pa less than Massachusetts but are still the second- and third-highest paying states at this level. New York City businesses have been obliged to list salary information in job ads since 2022, adding to the competitive nature of wage-setting.

At the lower end of the wage scale in California, some small restaurant businesses say they have actually been hindered by a law requiring larger firms to pay a higher minimum wage: “We already have a problem retaining employees as it is for this line of work. Now it’s going to be more difficult. Someone can go to a McDonald’s and get paid 20 an hour,” says California Burgers Co-Owner and Manager Theodore Linardos.

The Large Metros Where Small Businesses Pay the Highest Wages

Next, we ranked the metropolitan areas with the highest average and lowest average salaries at small businesses, beginning with large metro areas. The top-paying large metro is San Jose-Sunnyvale-Santa Clara in California, where the $96,985 average is $18,501 higher than second-placed Boston-Cambridge-Newton ($78,484). These are also the top two metros, regardless of metro size.

It is unsurprising that the San Jose-Sunnyvale-Santa Clara metro area comes out top, as in 2022 the average hourly wage across all sizes of business was $54.07; 82% above the U.S. average of $29.76. The Bureau of Labor Statistics noted that 13.7% of this Silicon Valley area metro works in the “computer and mathematical” occupational group, for which the local average hourly wage is 91% higher than the national average in this category. Startup builder and angel investor Anu Atluru speculates that Silicon Valley founders are “embracing a more diverse set of paths and experimenting with a middle-ground approach — one that combines the fiscal discipline of small businesses with the scaling ambition of Silicon Valley.” By building a small, versatile and efficient team without necessarily eyeing up big venture capital deals, such companies focus on profitability over expansion.

The Medium-Sized Metros Where Small Businesses Pay the Highest Wages

Durham-Chapel Hill in North Carolina is the medium-sized metro with the highest average wage among small businesses ($58,254 pa). Three California metros also make the top 10, along with Albany-Schenectady-Troy in New York. Albany has a high cost of living compared to the national average, and the city offers a number of economic support programs to small business owners. The Albany metro area also boasts major employers in tech and healthcare, who may influence local wage structures.

Texan metropolitan areas make up all three of those where small businesses pay the lowest wages. Four Florida metros are also among the bottom 10. In recent years, low wages and a high cost of living have driven many young people from the cities of Texas toward more rural areas where the conditions for starting a small business may be more favorable.

The Small Metros Where Small Businesses Pay the Highest Wages

Despite mid-sized Texan metros proving to have the lowest-paying small businesses (above), the small metro where small businesses pay the highest wages is, in fact, in the “Lone Star State.” Small businesses in the metropolitan area of Midland pay an average salary of $68,676. The city’s “thriving oil and energy industry” has facilitated an influx of millennial workers and entrepreneurs, working variously for established and new industry firms or starting small businesses to capitalize on the regional boom.

The average salary across small businesses in Midland is just $2,460 more than second-placed Boulder, Colorado ($66,216). The state of Colorado increased the minimum wage at the start of 2024. However, businesses within Boulder’s city limits have a lower floor to hit than those just outside but within county lines since Boulder County sets its own minimum wage. Across the state, the economy did better than expected in 2023, with around 64,500 new jobs created. However, small businesses tread a thin line between boosting wages to keep the economy active and maintaining the cash flow to run an everyday business.

Economy of Scale

The disparity in scale between the 49% of small businesses with between one and four employees and the 1% with 100 to 499 workers is not insubstantial. But companies at either end of the scale face their own challenges in paying decent wages while keeping their business in a healthy state.

The small businesses in the states and metros above may pay more on average than most small businesses in America, but it is up to each company to analyze their local conditions to see how far they can afford to go in order to compete.

Methodology

To uncover the states and metropolitan areas where small businesses pay the highest wages, we looked at data from the U.S. Census Bureau for businesses with fewer than 500 employees (the Small Business Administration’s threshold for a small business).

For every state and metro area, we calculated the average wage as the total annual payroll divided by the total employee count for businesses with under 500 employees.

This data analysis was completed in June 2024.