Minimum Wage Requirements 101

Does your organization pay minimum wage for any roles? What about roles that are paid above minimum wage, but still close to it? Did you know this may not be enough to be legal if you’re taking certain deductions off that pay? Did you know that you may not be able to pay only the federal minimum wage if your local minimum wage regulations differ? Let’s take a closer look at some minimum wage basics.

Federal Minimum Wage Laws: The Fair Labor Standards Act (FLSA)

At the federal level, minimum wage is regulated under the Fair Labor Standards Act (FLSA). Currently, this is set at $7.25 per hour, and has been at that level since the latest increase in 2009. This is the absolute minimum legal pay rate.

Some states and even some local jurisdictions have their own minimum wage regulations, and often these are higher than the federal requirements. If a business operates in such an area, then that employer has an obligation to pay the higher of the legal requirements. In short, the employer must meet whichever is the higher minimum wage level.

Wage Deductions: A Violation of Minimum Wage Requirements?

Even if an employee is paid at or above minimum wage, an employer can still fall short of meeting their minimum wage obligations if that employee’s wages are deducted for certain reasons.

Deductions from minimum wage are allowed for taxes, Social Security, and for employee-requested benefit programs, such as 401(k) contributions or health insurance premiums. But deductions for some items are not permissible if those deductions take the employee’s hourly pay below minimum wage. Deductions that cannot take an employee’s wages below minimum wage include:

• Employee uniform expenses
• Costs of tools required to perform the work
• Deductions for equipment breakage or loss

Are There Exceptions to Minimum Wage Laws?

While the minimum wage laws are pretty cut-and-dried, there are actually some exceptions to them. Here are some examples:

• Tipped employees.For employees who regularly receive tips, an employer can pay an hourly wage of as little as $2.13 per hour, as long as the tips make up the difference and that employee is still earning at least the standard minimum wage. If that employee’s tips are not sufficient to bring that employee’s earnings to the standard minimum wage (or more), the employer must make up the difference.
• Teen workers, for the first 90 days of employment. For employees under the age of 20, it is permissible to pay as little as $4.25 for either the first 90 days of employment or until the employee turns 20, whichever comes first. After that point, full minimum wage must be paid.
• Full-time students employed in certain industries.In retail, service, agriculture, and at colleges, full-time students can sometimes be paid less than minimum wage. The employer must get a certificate from the DOL for the individual to qualify, and the individual must still be paid at least 85 percent of the minimum wage. There are limitations—consult with legal counsel for full details if this applies to your company and you’d like to learn more.
• Employees of some businesses with annual gross sales of less than $500,000. For this exception to apply, the firm must also not be engaged in interstate commerce or in the production of goods for commerce. This is a very narrow exemption; if you think it might apply to you, seek legal guidance to confirm.
• Other job expectations. There is a list of workers that can be exempt from minimum wage requirements if certain criteria are met. For example, companions for the elderly, some individuals with disabilities (who are unable to meet the same productivity levels as other individuals), and some babysitters may qualify for exemptions, but they must meet specific criteria. [These are just a few examples—the full list can be found here: http://www.dol.gov/elaws/esa/flsa/screen75.asp.] If you think you may have an exception, work with legal counsel to determine where you stand. Typically, each exemption has its own set of requirements and minimums.

*This article does not constitute legal advice. Always consult legal counsel with questions. For more information from the DOL about minimum wage, see http://www.dol.gov/whd/minwage/q-a.htm. For more wage and hour information, also see http://www.wagehour.dol.gov.

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.