What Is a Minimum Wage?

Definition & Examples of Minimum Wage

Wait staff handing trays to coworker in a cafe
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The minimum wage is the minimum amount of money that an employer can pay a covered non-exempt employee for an hour worked. There are state laws as well as federal laws which cover minimum wages, and employers must stay in compliance with these laws.

Find out more about the minimum wage, how much it is, and what the rules are, as well as some exceptions to the law.

What Is a Minimum Wage?

A minimum wage is the lowest hourly pay that an employer may pay to its employee. The minimum wage is regulated by law. Federally, minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). This act is administered by the Wage and Hour Division of the U.S. Department of Labor, which is the division responsible for enforcing laws that protect the welfare of the nation's workforce.

The federal minimum wage is $7.25 per hour.

Many states also have minimum wage laws, which may be higher than the federal minimum wage (but never lower).

You can check your state's minimum wage requirements by visiting the U.S. Department of Labor website.

How Does Minimum Wage Work?

An employer is required to pay no less than the minimum wage to non-exempt employees. A non-exempt employee is someone who is covered by the provisions of the FLSA. An exempt employee is not covered by those provisions; usually, exempt employees are paid a salary, not an hourly wage. Managers, sales professionals, teachers, and certain other kinds of workers may be exempt from minimum wage and overtime pay requirements covered by the FLSA.

Although there is no limit to the number of hours an employer can require a non-exempt employee to work (if they are over the age of 16), they must pay overtime at a rate of time-and-a-half for every hour worked above 40.

Who Is Covered

The FLSA's minimum wage provisions cover more than 135 million full- and part-time workers in the U.S. It covers both public and private sector workers.

Businesses that produce, handle, sell, or work on goods used in interstate commerce have to comply with the minimum wage law if they do more than $500,000 in annual business.

The law also applies to other organizations regardless of the dollar volume of business, including hospitals, facilities that care for the sick or impaired, schools, higher education, and government agencies.

The act also covers domestic workers in private homes, such as housekeepers and home health aides. To be covered they must work more than 8 hours a week or earn more than $2,200 a year from one employer.

Who Is Exempt

Some industries and types of employees are exempt from the federal minimum wage requirements under FLSA. Sometimes special circumstantial exemptions apply as well.

For example, young people under age 20 may be paid a minimum wage of $4.25 for their first 90 days on the job.

An employer may not terminate or displace an existing employee in order to hire someone to work at the youth minimum wage.

Tipped employees, such as wait staff, may be paid a minimum wage of $2.13 per hour, although there are other requirements the employer must meet for this wage to be permissible.

Student learners and full-time students may be paid less than minimum wage, per certificates from the Department of Labor, as may people with decreased production capacity, such as the mentally or physically impaired.

Employees who wish to file a complaint regarding minimum wage concerns can contact their local Wage and Hour Division office or call the program's hotline at 1-866-487-9243. Employers are prohibited from retaliating against employees who file complaints regarding minimum wage concerns.

Notable Happenings

Because the federal minimum wage of $7.25 has not been changed since it was implemented in 2009, many have brought to attention the need for a wage floor indexed to inflation. Rising prices erode the buying power of a dollar, putting the inflation-adjusted value of the federal minimum wage 24% below where it was in 1968.

At $7.25 per hour, the federal minimum wage places a full-time working parent thousands of dollars below the poverty level. As a result, lawmakers and others have been in discussions regarding raising the federal minimum wage to $15, a figure which is estimated to raise wages for 33 million workers. The boost would give about $2,800 a year more to the average affected worker.

Supporters of a new minimum wage point out that an increase from $7.25 to $15 an hour would reduce income inequality, support children of minimum-wage-earning breadwinners, lift 4 million people out of poverty, and increase consumer spending, which bolsters the economy.

Key Takeaways

  • A mininum wage is the lowest allowable amount an employer can pay a worker for an hour worked.
  • In general, minimum wage applies to non-exempt employees covered by the provisions of the Fair Labor Standards Act.
  • Exemptions to the minimum wage provisions include managers, teachers, sales professionals, and others.
  • The federal minimum wage has not been adjusted for inflation nor changed since 2009.

Article Sources

  1. U.S. Department of Labor. "Employment Law Guide." Accessed Oct. 8, 2020.

  2. Economic Policy Institute. "Raising the Minimum Wage to $12 by 2020 Would Lift Wages for 35 Million American Workers." Accessed Oct. 8, 2020.

  3. Economic Policy Institute. "Raising the Federal Minimum Wage To $15 by 2025 Would Lift Wages for Over 33 Million Workers." Accessed Oct. 8, 2020.