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Minimum Wage FAQ: Frequently Asked Questions and Their Answers

Payroll
Article
11/04/2014

What is the federal minimum wage?

The federal minimum wage is $7.25 per hour, effective July 14, 2009. Minimum wage provisions are set by the Fair Labor Standards Act (FLSA). The minimum cash wage for tipped employees — those who customarily and regularly receive more than $30 per month in tips — is $2.13.

To whom does the federal minimum wage rate apply?

The minimum wage law (the FLSA) applies to employees of businesses with an annual gross volume of sales of at least $500,000. The law also applies to employees of smaller firms if they are engaged in interstate commerce or the production of goods for commerce, such as employees who work in transportation or communications or who regularly use the mails or telephones for interstate communications. It also applies to employees of federal, state or local government agencies, hospitals and schools, and it generally applies to domestic workers.

The FLSA contains a number of exemptions from the minimum wage that may apply to some workers.

Are there exceptions to paying the minimum wage?

Yes. Various minimum wage exceptions apply under specific circumstances to workers with disabilities, full-time students, workers younger than 20 in their first 90 consecutive calendar days of employment, tipped employees and student-learners.

What is the minimum wage for federal contractors?

Currently the minimum wage for federal contractors is $7.25 an hour, but beginning Jan. 1, 2015, workers performing on covered federal contracts whose wages are governed by the FLSA, the Service Contract Act or the Davis-Bacon Act will be entitled to a minimum wage of $10.10 per hour. The hike is a result of an executive order signed by President Obama on Feb. 12, 2014, and the final implementing regulations released by the US DOL.

Who ensures that covered employees are paid at least the minimum wage?

The Wage and Hour Division of the U.S. Department of Labor enforces the provisions, including the minimum wage provision, of the Fair Labor Standards Act. The enforcement offices can be found throughout the country, and their phone numbers and addresses are online or in the federal government "blue pages" section of the telephone book under "Labor Department."

What are the federal rules pertaining to overtime pay?

Nonexempt employees are covered by the overtime provisions of the FLSA. They must receive overtime pay for hours worked in excess of 40 in a workweek of at least one and one-half times their regular rate of pay. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays or regular days of rest, although hours worked on those days are counted toward hours worked when calculating total hours worked and overtime rates.

Premium pay for shift work, working weekends or nights is not required under the FLSA, but may be an agreement between the employer and the employee (or the employees’ representative).

See examples of overtime pay calculations, based on a 40-hour workweek.

Why do states have their own minimum wage rates?

Most states (and even some municipalities) have set their own minimum wage rates. Where employees are covered by both the applicable state or local law and the Fair Labor Standards Act, they are entitled to the higher of the rates. A map from the U.S. Department of Labor shows minimum wage rates in each state.

What is the minimum wage debate about?

Workers and employers generally line up on either side of the minimum wage debate. Those who favor raising the minimum wage of $7.25 an hour say it's only fair to compensate workers in low-paying jobs with what they believe is a living minimum wage. They claim that a higher minimum wage will boost economic growth. Those who want to keep the rate as it is contend that raising the minimum wage will hurt business, prompting employers to shorten hours, postpone hiring or lay off staff to keep labor costs down.

Some employers, however, support a higher minimum wage, and many, already pay more, viewing their workers as a strategic asset.

Regardless of what side of the minimum wage debate you’re on, it’s worth noting that the federal minimum wage has not changed since 2009, yet the Consumer Price Index has risen over 10 percent since then.

How might raising the minimum wage affect small-business owners?

The effect on small businesses of a higher minimum wage is uncertain, but opinions abound. The Department of Labor has posted “Minimum Wage Mythbusters” that answer 17 commonly held but erroneous beliefs about the minimum wage, including:

  • Increasing the minimum wage will cause people to lose their jobs; and
  • Increasing the minimum wage is bad for businesses.

It’s worth noting results of a poll by the American Sustainable Business Council and Business for a Fair Minimum Wage, released July 2014, which found that 61 percent of small-business owners with employees support gradually increasing the federal minimum wage from $7.25 to $10.10, and then adjusting it annually to keep pace with the cost of living. The survey of 555 for-profit firms with two to 99 employees found that "small-business employers see important business benefits from raising the minimum wage, in addition to increased consumer spending. Those polled expect a higher minimum wage to decrease employee turnover, increase worker productivity and boost customer satisfaction."

Is there a reference tool for the FLSA?

The Wage and Hour Division has a Handy Reference Guide to the Fair Labor Standards Act explaining the law and its application.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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