- The federal minimum wage is currently $7.25 per hour, and legislation is pending in Congress to increase it.
- California, Washington, Massachusetts and Connecticut have especially high state minimum wages.
- You must pay employees the greater of either your state's minimum wage or the federal minimum wage.
- This article is for business owners looking to determine their state and federal minimum wage requirements.
The minimum wage has long been more than a labor law. It's often a highly politicized issue, one about which your friends and family might have strong opinions. That said, no matter what you and the people in your life think about minimum wage laws, your business must almost always follow them. To that end, we've assembled the below guide to federal and state minimum wages. Read on to learn how to remain compliant in all your employee payments.
What is the minimum wage?
The minimum wage is the lowest legally allowed hourly pay rate an employer can set for its employees. For example, in 2005, the federal minimum wage was $5.15 per hour. As such, in 2005, all U.S. employers were required to pay their employees at least $5.15 per hour. Salaried employees must also receive at least the minimum wage when their annual income is broken down into hourly pay rates.
Minimum wage exceptions, or at least different rules, often exist for tipped workers such as restaurant servers. These exceptions often lead to separate, lower minimum wages for these workers, who must then rely on tips to bridge this income gap.
What is the federal minimum wage?
As of November 2021, the minimum wage for all workers covered under the federal Fair Labor Standards Act (FLSA) is $7.25 per hour. You must pay all your employees at least this hourly wage, with extremely limited exceptions.
If your state has a higher minimum wage than the federal equivalent, you must pay your employees at least the state wage. For example, Oregon's minimum wage is $12.75 per hour, which is greater than the federal minimum wage, so Oregon employers must pay their employees at least $12.75 per hour.
Key takeaway: The 2021 federal minimum wage is $7.25 per hour. However, if your state's minimum wage is higher, you must pay your employees at least the state minimum.
What is the federal minimum wage for tipped employees?
The minimum wage works slightly differently for tipped employees. According to the FLSA, employers must pay any employee who earns at least $30 in tips per month at least $2.13 per hour.
This rule assumes that employees' tips should be large enough to make their $2.13 hourly wages effectively at least $7.25 per hour. However, the tipped minimum wage is controversial. Some argue that it worsens poverty, and President Joe Biden has hinted that he would like to end it as well. As we'll explain later, Biden has already taken steps to do so for federal contractors.
Many states have their own minimum wages for tipped employees. If you choose to pay at these rates, payroll software can help you distinguish between tipped and non-tipped employees. This way, you don't accidentally pay tipped employees non-tipped rates. Learn more about the best payroll software, where you can find more information on payroll software options, such as in our Gusto review and our review of Intuit QuickBooks.
Will the federal minimum wage increase in 2022?
Although the U.S. Department of Justice, which is part of the executive branch, enforces the FLSA, it falls upon Congress to change the minimum wage. Certain congresspeople have taken steps to enact such changes, as has Biden.
Federal minimum wage laws in the House of Representatives
In 2021, Rep. Bobby Scott (D-VA) introduced the Raise the Wage Act. This bill would immediately raise the federal minimum wage to $9.50 per hour upon the president's signing it into law. Thereafter, the federal minimum wage would gradually increase to $15 per hour over a five-year period.
The Raise the Wage Act of 2021 has been referred to the House Committee on Education and Labor. It has not yet been brought to the floor for a vote. It could potentially languish in this committee without ever coming to a vote. That said, in July 2020, the House voted to incrementally raise the minimum wage in roughly the manner described in Scott's bill. Since the Senate never voted on this prospect, Scott reintroduced the concept with his 2021 bill.
Federal minimum wage laws in the Senate
In early 2021, Sen. Bernie Sanders (I-VT) attempted to add provisions for a $15 federal minimum wage into Biden's COVID-19 stimulus bill. However, the Senate ultimately voted against this proposition.
In April 2017, Sanders and Sens. Chuck Schumer (D-NY) and Patty Murray (D-WA) introduced a bill that would raise the minimum wage to $15. However, this bill did not pass, and Sanders reintroduced it in January 2021. His newer bill, also titled the Raise the Wage Act of 2021, has been referred to the Senate Committee on Health, Education, Labor and Pensions.
Federal minimum wage laws in the executive branch
Were the Raise the Wage Act of 2021 to reach Biden's desk, one could safely assume he would sign it. Biden campaigned heavily on the promise of a $15 federal minimum hourly wage. In April 2021, he also issued an executive order mandating that federal contractors pay a minimum wage of $15 per hour.
This executive order additionally guarantees a $15 minimum wage for disabled federal contract workers. It will also eliminate the tipped minimum wage for federal contractors by 2024.
Which state has the highest minimum wage?
Roughly half of the 50 states have their own minimum wages. As of November 2021, California's state minimum wage is the highest, at $14 per hour. However, this minimum wage applies only to employers with over 25 employees. For all other employers, California's minimum wage is $13 per hour.
Did you know? California has two minimum wages based on a company's number of employees.
As such, depending on a company's size, it might pay higher minimum wages in Washington state than in California. The Washington minimum wage is $13.69 per hour for all employers. This figure is, of course, greater than California's minimum wage for companies with 25 or fewer employees. Also of note is that the minimum wage in Massachusetts is $13.50 per hour, with Connecticut not far behind at $13 per hour.
Additionally, the District of Columbia's minimum wage is $15.20 per hour. However, since Washington, D.C., is technically not a state, the state with the highest minimum wage is either California or Washington.
Which state has the lowest minimum wage?
Fifteen states are tied for the lowest minimum wage. These states' minimum wage is equivalent to the federal minimum wage of $7.25:
- North Carolina
- North Dakota
- New Hampshire
Technically, Georgia's state wage laws set a minimum wage of $5.15 per hour. However, as explained earlier, the FLSA's $7.25 hourly minimum wage would supersede this state law. As such, the Georgia minimum wage is effectively $7.25 per hour.
What led to minimum wage changes in 2021?
Most minimum wage changes reflect increases in the cost of living. They may also reflect state congresspeople introducing legislation to address their constituents' wage concerns. Often, this legislation begins as ballot measures in November elections. If the majority of voters approve a ballot measure, it typically becomes an amendment to the state constitution.
For example, in the November 2020 elections, Florida voters were asked a ballot question about raising the minimum wage. More than 3 in 5 voters were in favor of the state raising the minimum wage. As such, Amendment 2 became law in Florida.
Amendment 2 resulted in Florida's hourly minimum wage increasing to $8.65 on Jan. 1, 2021. An increase to $10 followed on Sept. 30, 2021. This hourly minimum wage will increase by $1 every year on Sept. 30 until it reaches $15 in 2026.
How have minimum wages changed with time?
In 1938, when President Franklin D. Roosevelt signed the FLSA into law, the first federal minimum wage went into effect. This hourly wage was 25 cents per hour, which is less than $5 per hour in 2021 when adjusted for inflation. Since then, the minimum wage has been raised over 20 times.
However, adjusting for inflation, the minimum wage was technically higher in the past than it is now. In today's dollars, the highest-ever federal minimum wage was $1.60 per hour in 1968. Without context, this number seems quite small. However, when adjusting for inflation in 2021, this figure is equal to $12.30 per hour. That's $5.05 greater than the actual 2021 federal minimum wage.
The current $7.25 minimum wage went into effect in 2009. The 12-year period since then is the longest the federal government has gone without raising the minimum wage.
What must small businesses owners know when it comes to minimum wage?
As a small business owner, you can safely assume you must pay all your employees the minimum wage. In reality, though, some employees are exempt from this rule. These exemptions are somewhat rare; examples include farmworkers on small farms, homeworkers making wreaths and seamen on non-American vessels. The U.S. Department of Labor maintains an exhaustive list of minimum wage exceptions.
The most important of these exemptions concerns executive, professional, administrative and outside sales employees. Technically, you can pay these employees below the minimum wage. However, you're almost entirely unlikely to find people willing to take these roles for salaries below the minimum wage. If anything, most annual salaries for these positions come in well above the current federal minimum wage.
In short, you must know your state minimum wage and the federal minimum wage – and which one applies to your business. All employees must receive the appropriate minimum hourly wage. Adhering to this will keep your business compliant with the law.