US Minimum Wage: A Quick and Easy Guide

2023

Written by Asim Qureshi
By Asim Qureshi, CEO Jibble

May 4th 2023

A minimum wage is viewed as a matter of basic human dignity and respect for workers. In the US, it serves as a protection for low-wage workers, ensuring that they receive a fair and livable wage for their labor. Without a minimum wage, employers could pay employees very low wages, which could lead to exploitation and poverty. In this guide, I provide the basics of the US minimum wage regulations, touching on its history, eligibility criteria, compliance, exemptions, and the rights of employees and employers.

This article covers:

What is the Minimum Wage in the US?

The minimum wage in the United States is the lowest hourly wage that employers are legally required to pay to most employees. It is established by federal, state, and local laws, and is intended to ensure that workers receive a basic level of pay that allows them to support themselves and their families. 

The federal minimum wage as of 2021 is $7.25 per hour for nonexempt employees, although some states and cities have set higher minimum wage rates. In addition to the Federal minimum wage laws, several states also have their own minimum wage regulations. 

A History of the Minimum Wage in the US

The establishment of a base hourly wage for workers in the U.S. took place in 1938 when the Fair Labor Standards Act (FLSA) was passed by United States Congress establishing what is known as a federal minimum wage. The Act initially called for a 40-cent-per-hour wage but was reduced to 25 cents per hour to gain support from Congress members in southern states. This marked a significant shift in labor policy as it was the first time the federal government set a minimum wage and established the principle that workers are entitled to a certain amount of pay for their work, at least those covered by the law. However, determining which workers qualify for this wage and the exact amount they should receive has been a political issue since. 

Over the course of six decades, Congress has raised the federal minimum wage multiple times, starting with a raise to 75 cents in 1949. In 1961, the FLSA was amended to include more workers but allowed retail and service businesses to hire full-time students at wages of 15% below the minimum wage. Two years later, in 1963, President Kennedy signed the Equal Pay Act, which granted equal pay for workers regardless of gender. The federal minimum wage peaked at $1.60 ($11.53 in 2019 dollars) in 1968 but did not keep up with inflation. In 1974, Congress broadened the minimum wage law to cover all non-supervisory government workers, and in 1989, they changed the FLSA to apply only to businesses with at least $500,000 in revenue, but smaller retail businesses are still subject to the law during any week in which they engage in interstate commerce or produce goods that will be sold in other states. Finally, in 2009, the federal minimum wage was raised to $7.25 due to the Fair Minimum Wage Act of 2007, two years earlier, which included phased increases to the Federal minimum wage. These were as follows:

  • For work done before July 24, 2007, the Federal minimum wage is $5.15 per hour.
  • For work done from July 24, 2007 to July 23, 2008, the Federal minimum wage is $5.85 per hour.
  • For work done from July 24, 2008 to July 23, 2009, the Federal minimum wage is $6.55 per hour.
  • For work done on or after July 24, 2009, the Federal minimum wage is $7.25 per hour.

Who is Eligible for US Minimum Wage?

In the United States, the minimum wage applies to most employees who are covered by the Fair Labor Standards Act (FLSA). These include:

  • Employees of companies that have an annual gross volume of sales or business that is equal to or greater than $500,000
  • Workers in smaller companies who participate in interstate commerce or produce goods for commerce, such as those who work in transportation, communication, or regularly use interstate communication methods such as the mail or telephone 
  • Individuals such as guards, janitors, and maintenance workers who perform tasks closely related and essential to these interstate activities
  • Workers in government agencies, hospitals, schools, and domestic workers

It is important to note that there are exemptions to the minimum wage rule for some workers, which are outlined in the FLSA. The Wage and Hour Division’s Handy Reference Guide to the FLSA helps clarify how the law applies.

Who is Exempted from US Minimum Wage?

Exceptions to the Federal minimum wage regulations apply to certain groups of workers in specific circumstances in the US. These programs exist and permit employers to pay such workers less than the full Federal minimum wage under sub-minimum wage certificates. Exempted workers include workers with disabilities, full-time students, youth under age 20 during their first 90 consecutive calendar days of employment, tipped employees, and student-learners.

What Entity is Responsible for Upholding US Minimum Wage Laws?

The Wage and Hour Division of the U.S. Department of Labor is accountable for implementing and enforcing the regulations associated with the Federal minimum wage, as established by the Fair Labor Standards Act (FLSA). The Division has a nationwide presence with various offices and is committed to enforcing the minimum wage law through both public education initiatives and enforcement measures to ensure that workers receive fair compensation.

Compliance with US Minimum Wage Laws

Employers who are subject to the Fair Labor Standards Act’s minimum wage provisions are required to pay at least the Federal minimum wage to nonexempt covered employees. Those who knowingly or consistently breach the minimum wage payment regulations can be fined up to $1,000 for each violation as a civil money penalty.

Employers must also display a notice regarding the Act in a prominent location within their premises for employees to easily read. The Wage and Hour Division of the Department of Labor determines the content of the notice, and an approved version of the minimum wage poster is available for employers to use as a poster or for informational purposes. The latest version of the poster was updated in April 2023, although the August 2016 version still meets the posting requirement.

Should Young Workers be Paid the US Minimum Wage?

Young individuals under the age of 20, when employed, may receive a special minimum wage of $4.25 per hour for their initial continuous 90 days of employment, provided their work does not take away work opportunities from other employees. Once the 90-day period expires or the worker turns 20 (whichever comes first), then they must be paid the full Federal minimum wage of $7.25 per hour, as mandated by the Fair Labor Standards Act (FLSA).

US Minimum Wage for Tipped Workers

Employers are only obligated to pay a direct wage of $2.13 per hour to employees who receive tips, provided that:

  • The tips plus the wage meet or exceed the Federal minimum wage
  • The employee retains all tips
  • The employee usually earns more than $30 per month in tips

If the employee’s tips combined with the employer’s direct wages do not amount to the Federal minimum wage, then the employer is obligated to provide additional compensation to make up for the difference.

In some states, there are minimum wage laws that pertain specifically to tipped employees. Employees bound by both the Federal and state wage laws are entitled to the provisions that offer the greater benefits.

US Minimum Wage for Full-time Students

Employers who hire full-time students in retail or service stores, agriculture, or colleges and universities can apply for a certificate from the Department of Labor to pay them a minimum of 85% of the minimum wage. The certificate also restricts the hours the student may work to 8 hours a day, a maximum of 20 hours a week when school is in session, and 40 hours a week when school is not in session. Additionally, it mandates compliance with child labor laws. It is important to note that there are some restrictions on the program’s use. Upon the occasion of a student’s graduation or departure from school permanently, employers must pay them the full federal minimum wage of $7.25 per hour.

US Minimum Wage for Student Learners

Employers hiring 16-year-old high school students enrolled in vocational education, also known as shop courses, can pay the student not less than 75% of the minimum wage for the duration of their enrollment in the vocational education program as long as they obtain a certificate from the Department of Labor that permits them to do so.

How Often Does the US Federal Minimum Wage Go Up?

To raise the minimum wage, a bill must be passed by Congress and then signed by the President in order for it to become law. Therefore, the minimum wage doesn’t go up in an automatic and consistent manner.

What Happens When State Law Mandates Minimum Wage Higher Than the Federal Law?

Employees covered by state law that requires payment of a higher minimum wage than federal law will receive the higher state minimum wage rate. For instance, if the federal minimum wage is $7.25 per hour and the state minimum wage is $10.00 per hour, the employer must pay the employee at least $10.00 per hour.

An employee may be covered by both federal and state minimum wage laws, in which case the employer must pay the higher of the two minimum wage rates. 

It’s important to note that state and local minimum wage laws can vary widely, and may also have different rules and exemptions than federal law.

Important Cautionary Note

When making this guide we have tried to make it accurate but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for use of this guide.