- The minimum wage is the lowest allowed employee pay rate. It differs by state and sometimes city.
- Federal minimum wage laws determine acceptable wages, overtime pay and exemptions to both.
- Minimum wage jobs generally require employees to serve or constantly interact with customers.
- This article is for small business owners and human resources professionals who have or will have employees and are looking to learn the minimum wage laws they must obey.
When hiring new employees, one of the most important decisions a small business owner has to make is how much to pay them. When you set pay rates, especially for hourly employees, you need to know the laws regarding how much they have to be paid. Federal and state minimum wage laws impose a baseline for how much you have to pay your employees. These laws don't prevent you from paying employees more than the minimum wage, but from paying less than it.
What is minimum wage?
The minimum wage is the lowest rate at which you can pay your employees. It is a violation of the law to pay employees at rates below the minimum wage.
Currently, the federal minimum wage for nonexempt employees is $7.25 per hour. Besides the federal minimum wage, each state has its own minimum wage – and in some cases, a city's minimum wage law may differ from state law. If your company operates in a location with multiple minimum wage laws, you must pay your employees at least the highest of all these minimum wages.
Key takeaway: Minimum wage is the lowest legal employee pay rate, and it differs by state and sometimes city.
What types of jobs usually get paid minimum wage?
As the name indicates, minimum wage is the very least you must pay your employees – if you can pay more, then you almost always should. That said, certain jobs usually earn minimum wage or just slightly above it, such as these:
- Basic care services for children, people with illnesses or disabilities, and elderly patients
- Non-supervisory janitors and cleaners
- Delivery drivers and shipping employees for non-major shipping companies
- Food service and restaurant employees
- Storefront cashiers
- Ticket attendants at movie theaters, amusement parks and other entertainment spaces
- Beauty salon employees
Almost all jobs that earn minimum wage are paid hourly rather than on an annual salary basis. In general, employers pay salaried employees at rates higher than the minimum wage.
Key takeaway: Almost all minimum wage jobs are roles in which the employee provides a service to clients and customers or directly interacts with them every day.
How does the minimum wage law work?
Minimum wage laws are intended to foster an acceptable standard of living for all working people. They were introduced to stimulate the economy following the Great Depression, and today they serve to protect employees, though their provisions have changed considerably since the 1930s. In the near-century since they were established, federal and state minimum wage laws have often diverged.
Federal minimum wage law
The federal minimum wage law is part of the Fair Labor Standards Act. According to the FLSA, the federal minimum wage is $7.25 per hour for all qualified employees. The FLSA also includes provisions for overtime law (the minimum wages you must pay employees who work overtime), overtime exemptions and minimum wage exemptions.
Federal overtime law
Under the FLSA, employers must pay all nonexempt employees additional wages for overtime. Nonexempt employees who work more than 40 hours in a workweek are entitled to overtime rates of at least 1.5 times their usual wages. (Note that weekend work doesn't automatically count as overtime; it's only overtime if the employee works more than 40 hours in a workweek, regardless of the days.)
Federal overtime law exemptions
Not all employees are entitled to overtime pay under the FLSA. There are six major FLSA overtime exemptions:
1. Some commission-based employees who work in these types of retail or service jobs:
- Auto, trailer, truck, boat, farm implement or aircraft sales
- Parts clerks and mechanics whom non-manufacturing companies hire to improve automobiles, trucks or farm implements before completion of a sale
2. All employees whose work fits one of these descriptions:
- Jobs with railroads or air carriers
- Taxi drivers
- Some motor carrier employees
- Seamen stationed on American vessels
- Local delivery employees paid on approved trip-rate plans
3. Some nonmetropolitan broadcasting stations' announcers, news editors and chief engineers
4. Domestic service employees who live in their employer's home
5. Movie theater employees
The Department of Labor also lists partial overtime pay exemptions that may apply if your company is in the agricultural, petroleum, healthcare or public service sectors.
Federal minimum wage exemptions
Some U.S. employees are exempt from federal minimum wage requirements. All these employees are also exempt from the FLSA's overtime pay requirements.
- Executive, administrative and professional employees
- Outside sales employees
- Some employees in computer-related fields
- Seasonal amusement or recreational employees
- Some employees of small newspapers
- Seamen stationed on foreign vessels
- Fishing employees
- Newspaper delivery employees
- Farmworkers whose employers used fewer than 500 "man-days" of farm labor in any quarter of the previous calendar year
- Casual babysitters
- Employees who work as companions to elderly or infirm people
Employers should be particularly aware of the first of these groups, since most desk jobs fall into the "executive, administrative and professional employees" realm. If you've never heard of paying overtime to startup employees, this category's inclusion on the minimum wage and overtime exemptions list explains why. Of course, if you offer these employees salaries even close to just the minimum wage, they'll likely look elsewhere for work.
State minimum wage law
As an employer, you don't just have to follow federal minimum wage laws. You must also comply with your state's minimum wage laws – and, occasionally, local municipal minimum wage laws.
To complicate matters, no two states have the same minimum wage laws. A handful of states – Alabama, Louisiana, Mississippi, South Carolina and Tennessee – have no minimum wage laws. In those states, the minimum wage defaults to federal law.
In Georgia and Wyoming, the state minimum wage is lower than the federal minimum wage. However, as mentioned earlier, in any region with more than one minimum wage law, employers must pay at least the highest minimum wage requirement. Thus, the federal minimum wage applies in Georgia and Wyoming.
Other states have minimum wages significantly higher than the federal minimum wage, such as Washington state's $13.50, California's $13 and Massachusetts' $12.75 per hour. Both California and Massachusetts have passed laws determining that the state minimum wage will gradually increase to $15 per hour – more than double the federal minimum wage. Many other states have also established schedules for future minimum wage increases.
Some cities have already mandated a $15 hourly minimum wage. This is true in New York City, where the state minimum wage is currently $11.80 (and will increase to $12.50 on Dec. 31, 2020). This attests to a key facet of state minimum wage laws: If your city mandates a higher minimum wage than your state, the city law supersedes the state law. [Need a payroll service to ensure you pay your employees the proper amount? Check out our recommendations for the best online payroll services.]
Key takeaway: Federal minimum wage laws encompass wages, overtime pay and exemptions to both. Some states and cities mandate higher wages than the federal minimum.
How does the federal minimum wage increase?
Federal minimum wage increases are determined by a congressional vote. In 2019, a bill to increase the federal minimum wage to $15 per hour passed in the House of Representatives, but it has not yet been taken up in the Senate. Should it pass there too, the president will have to sign it, and it will become law sometime thereafter. If the bill currently awaiting Senate deliberation does ultimately pass, it would supersede all states' current minimum wage laws.
Key takeaway: Congress controls federal minimum wage increases. A bill to increase the federal minimum wage to $15 is awaiting Senate approval.