Federal minimum wage laws have been in effect for more than 90 years, but many small and midsize businesses (SMBs) don’t fully understand what the law encompasses.
Some states, cities, and counties have legislated their own version of this worker protection law. The recent “Fight for 15” has put minimum wage in the spotlight, with many lobbying for a higher starting salary for American workers. A greater understanding of the scope (and exceptions) of minimum wage laws could help businesses gain an advantage in the marketplace.
What is the 2020 federal minimum wage?
Today, the federal minimum wage is set at $7.25 per hour, where it’s been since 2009. The law requires non-exempt (employees who are paid hourly) to receive no less than that amount for each hour worked.
Many states have increased the minimum for 2020: Some have already implemented incremental increases for the coming years as well. (See image below).
For employees who receive the bulk of their wages in tips, the federal minimum wage is set at $2.13 an hour in direct wages, providing tips received increase the worker’s hourly rate to at least the minimum wage of $7.25.
If the worker doesn’t earn at least $5.12 per hour in tips, the employer must make up the difference to raise them to at least $7.25.
Some states do not allow tips to reduce the minimum wage, others have a higher hourly-tipped rate.
Is the federal minimum wage going to increase?
Attempts to raise the minimum wage at the federal level have been brought to Congress many times. Most recently, the House of Representatives passed its Raise the Wage Act in July of 2019, recommending a jump to $15 per hour by 2025.
The legislation has not fared well in the Senate. Local government is filling the void with their own versions of the minimum wage law. For any state, city or county that does not have its own minimum wage requirement in place, federal law applies.
Are there exemptions from minimum wage?
Some categories of workers can receive a lower hourly rate than the minimum wage set by the federal government.
In addition to tipped workers, these include:
- Full-time students
- Youth under age 20 for their first 90 consecutive calendar days of employment
- Workers with disabilities under certain circumstances, among others
Student-workers may be paid 75% of the current minimum wage providing the employer has earned an authorizing certificate from the U.S. Department of Labor. Certifications are generally provided for jobs that require lengthy specialized training. The DOL defines student learners as between 16 and 18, receiving instruction at an accredited school and employed on a part-time basis as part of a vocational training program.
Full-time students who work in retail or service stores, in agriculture or at colleges and universities may be paid at 85% of the current minimum wage, providing the employer has obtained an authorizing certificate from the Department of Labor.
Young people, between 16 and 20 years old, may be paid $4.25 per hour for the first 90 days they are employed. This exception is meant to encourage businesses to hire and train younger workers. After 90 calendar days – not 90 days worked – the employee must be increased to the current minimum wage.
For workers who have disabilities, businesses can offer subminimum wages with limited restrictions. If the employee’s disability impacts productivity, businesses may obtain a Certificate Authorizing Payment of Subminimum Wages from the Department of Labor. A process determines how to calculate the prevailing wage for the position versus the productivity the employee with a disability can provide. The certificate verifies the employer has made the correct calculations and allows less than the minimum wage to be offered.
Other categories of workers are also exempt from minimum wage requirements: small farm workers, seasonal and recreational workers, commissioned sales representatives, and more. The Department of Labor sets guidelines for each of these categories of worker.
What is the minimum wage for federal contract workers?
Executive Order 13658, enacted in September 2019, raised the minimum wage for federal contract workers to $10.80 per hour effective January 1, 2020. For tipped workers who perform work on or in connection with covered contracts, the hourly rate increased to $7.55 per hour.
What is the history of the federal minimum wage?
The minimum wage is set by the U.S. Department of Labor Wage and Hour Division, which also issues compliance rules impacting overtime and child labor regulations. The Fair Labor Standards Act was signed into law in 1938, setting America’s first minimum wage at 25 cents per hour.
The law was enacted to stabilize the country’s post-depression economy, as well as set standards to protect workers. In addition to setting a minimum hourly rate (which has only been changed 22 times over the course of the law’s 90-plus years’ history), it created overtime rules and rates. The FLSA also set the minimum age for child labor at 16, with some exclusions for dangerous or potentially detrimental jobs requiring business hire those 18 and older.
Other rules under the FLSA
In addition to mandating the minimum wage, the FLSA administers overtime and child labor laws. Overtime pay must be given to employees who work in excess of 40 hours per week at time-and-a-half.
Overtime rules do not apply to salaried workers. For employees who fall under the Wage and Hour Division definition as exemptions for executive, administrative, professional, outside sales, and computer employees, overtime rules are also not applicable. For 2020, to meet the overtime exemption allowance, these workers must earn a salary of at least $684 per week.
Other overtime and child labor law exceptions are also provided under the FLSA. They include caregivers, live-in domestic help, and other categories. Complete details are available through the Department of Labor website.
For small to medium-sized businesses, understanding the scope of minimum wage laws is necessary to contain costs. Minimum wage laws were designed to protect workers, but they can be advantageous to the business, as well.