The B.C. government will increase the minimum wage to $10.85 per hour effective September 15, 2016.

The 40 cent increase will move British Columbia out of last place nationally for minimum wage.

"We are the fastest growing economy in the country and with an economy growing this fast we should absolutely make sure the people making minimum wage in our province should be doing better than they are today," said Premier Christy Clark.

The current minimum wage is $10.45 — the lowest among Canadian provinces.

The 2016 increase will, for the first time, be based on the Consumer Price Index. In the past, changes have been pegged to inflation rather than how well the economy is performing.

The government has decided to add an additional 10 cents an hour to the CPI increase. The province is also committing to increase the minimum wage to $11.25 on September 15, 2017.

"We have spent a lot of time analyzing where everyone else is. Decisions and changes to the minimum wage take place all the time," said Shirley Bond, B.C.s jobs minister.

What I expect by the time we get to September 2017 is we will be in the top half of jurisdictions in Canada, which is where we should be."

Ontario has highest minimum wage

Ontario is the province with the highest minimum wage, paying $11.25 an hour. The B.C. Federation of Labour had been calling for British Columbia to immediately raise the wage to $15 an hour.

"It is clear that our campaign is having an impact and has forced the government to reconsider B.C.'s minimum wage," said Irene Lanzinger, president of the B.C. Federation of Labour in a statement.

Irene Lanzinger, the president of the B.C. Federation of Labour, is calling for a minimum wage of $15/hour. (Irene Lanzinger)

"Unfortunately, the B.C. Liberals are still not taking the steps needed to lift a person working full time above the poverty line."

"This is just one more missed opportunity for the premier and the government to do what's right."

Some business groups are not happy either. The B.C. Chamber of Commerce is worried about the effect the wage will have on small businesses.

The increase is larger than the chamber had expected.

"The minimum wage is a floor so as you increase that it has a ratchet effect on other people you need to effect along the way," said Dan Baxter, director of policy for the B.C. Chamber of Commerce.

"When you multiple it by hundreds, if not thousands of employees, it does have the ability to increase rapidly.

It's not that we are opposed to the increases, but we want to make sure they are predictable and our members have some certainty."

In order to deal with the challenges of the minimum wage on these businesses, the province has reduced the small business tax rate.

The change means for an incorporated business, with $100,000 in active business, would have its taxes reduced from $2,500 to $1,500.