You have an obligation as an employer to pay certain employees a minimum wage per hour. Federal and state laws may apply to the amount an employee must be paid per hour, and employers in some states must pay a higher hourly rate than under federal law. Special federal and state rules apply to tipped employees.
When paying your employees, it's of the utmost importance that you comply with the minimum wage laws established by both the federal government and your state. Under the federal law, the Fair Labor Standards Act (FLSA) requires that a minimum wage be established, and that generally all employees except those who are exempt be paid that minimum wage.
The Fair Minimum Wage Act of 2007 raised the federal minimum wage to $7.25 per hour effective July 24, 2009. This rate must be paid to all nonexempt employees for each hour worked up to and including 40 hours in a calendar workweek.
Any time beyond 40 hours must be paid as time-and-a half overtime, which works out to a current minimum of $10.88 per hour.
If you don't pay your employees on an hourly basis does that mean that the minimum wage law does not apply to you? In fact, the minimum wage doesn't just apply to hourly workers. The law doesn't require you to pay an employee on an hourly basis just because the law is stated that way; but it does require you to pay a covered employee for a workweek an amount that's at least equal to the minimum wage, multiplied by the hours worked. The employee may be paid on an hourly, a salary, a monthly, a piecework, or any other basis as long as the statutory minimum requirement of $7.25 per hour is satisfied.
Ashley works 40 hours a week and is paid a weekly salary for those 40 hours. As a covered, nonexempt employee, Ashley must be paid a minimum weekly salary of $290 in order to meet the statutory minimum wage requirement.
The minimum wage does not always have to be paid in monetary terms. For example, you can pay some or all of it in room and board. But there are two exceptions to that rule:
- you cannot make a profit on the non-cash payments, and
- you cannot use the cost of facilities to pay your employees, if the employee's use of the facility is primarily for your benefit.
To accurately determine your minimum wage pay obligations, once you figure out if your employees are covered by federal wage and hours laws, you should consider the following:
- Determine who must be paid the minimum wage as some occupations and categories of employees are specifically exempt.
- If you have tipped employees, tips may count as part of the minimum wage.
- Consult your state's minimum wage law to ensure that you are complying both federally and in your state.
Who must be paid minimum wage?
Even though you may have already determined that all your employees — or at least a few individual employees — must be paid the minimum wage because of their nonexempt status, check to see if your employees fall into this list of occupations who don't need to be paid minimum wage under the FLSA (but are still protected by other provisions such as overtime pay and child labor laws):
- students in institutions of higher learning
- students working for schools.
- employees in American Samoa and some employees in Puerto Rico
- tipped employees, in conjunction with tip credit
Also, in some cases, you can pay certain types of employees what is referred to as a sub-minimum wage. The categories of employees who may be paid sub-minimum wages are:
- certain workers with disabilities
- students working in retail or service establishments
- students working in agriculture
If you want to pay someone in one of the above groups a lawful sub-minimum wage, your first step must be to obtain the appropriate certificate from the federal government. Depending on the specific category of worker, there will be different forms to complete.
In some cases, you may also have to provide additional information. For example, when applying to pay sub-minimum wages to a person with a disability, you may also have to complete forms that will allow the government to obtain medical records so that they can make a determination about your application.
To obtain forms, contact your local office of the Wage and Hour Division. Check the Department of Labor website for the Wage and Hour Office nearest you.
If you are considering paying someone a sub-minimum wage, you'll obviously have to jump through a few hoops to do it because there are rules to follow and permission from the federal government to obtain. You may find it to be more trouble than it's worth.
Minimum wage rules for tipped workers
Federal law and some state laws allow you pay tipped employees a different hourly rate based on a credit allowed for tips. Federal law allows you, within limits, to take a tip credit against the minimum hourly wage rate. In other words, the law allows you to presume that your tipped employees are receiving a certain level of tips each pay period, and you can reduce their cash pay accordingly. The rules are as follows:
- The minimum wage for tipped employees is $2.13, which was originally 50 percent of a previous basic minimum wage of $4.25; although the minimum wage was raised to $7.25 per hour effective July 24, 2009, the minimum wage for tipped employees was not increased; thus, you can take a tip credit of up to $5.12 per hour.
- The credit cannot exceed the value of tips received, so an employee must actually be receiving $5.12 in tips per hour before you can get the credit.
- The employee must be notified that you're taking the credit.
- All tips received by the employee must be kept by the employee — the employer may not keep any tips received.
- Only "tipped employees" qualify for the credit, who are defined as employees who regularly and customarily receive over $30 a month in tips.
Workers who normally get more than $30 per month in tips only during a particular month, such as during the Christmas season, don't qualify for the credit as tipped employees.
Some state laws also address tip credits, and in many cases they mirror the federal law. Where they don't, the rule is that if the federal minimum wage minus the federal tip credit is lower than your state's minimum wage minus your state's tip credit (if any), you must pay your employees the higher amount.
Consult our state map for the minimum wage laws for tipped employees in your state.
State minimum wage laws
Individual states set minimum wages either above, below or the same as the federal minimum wage. In some cases, a state's minimum wage will vary by the type of worker.
- If your state's minimum wage is lower than the federal level, and you are subject to both federal and your state's wage and hour laws, you must abide by the federal minimum wage.
- If your state's minimum wage is higher than the federal minimum wage, and you are subject to both federal and your state's wage and hour laws, you must abide by the state's law.
- If you're not subject to federal minimum wage law, this does not mean that you are also exempt from state minimum wage requirements. The general rule is that if you are exempt from paying the federal minimum wage (generally, because your employees are not involved in interstate commerce), you must pay the minimum wage set out by your state.
In short, you pay the higher amount when subject to both laws.
Consult our minimum wage by state map for the requirements in your state.