You can’t just pay your employees any amount you want. You must follow federal, state, and local laws that set minimum wages.
What is minimum wage?
Minimum wage is the lowest amount you can pay an employee per hour of work. You can pay more than the minimum wage, but you should never pay less than the minimum wage.
Who sets minimum wage?
The federal government sets a standard minimum wage that applies to all employees in the U.S. However, states and localities can set greater minimum wages. If the state or locality where an employee works has a greater minimum wage, you must follow that state or local law.
What is the federal minimum wage?
The federal minimum wage is regulated by the Fair Labor Standards Act (FLSA) and is enforced by the U.S. Department of Labor.
The current federal minimum wage is $7.25 per hour.
State minimum wage
As mentioned before, each state can set its own base wage. If a state’s minimum is greater than the federal minimum, you must pay employees at least the state’s minimum wage.
For example, the minimum rate in Michigan is $9.25. If you have employees in Michigan, you must pay them at least the state’s minimum since it is greater than the federal minimum wage.
The chart below lists all the states that have a minimum hourly pay rate greater than the federal minimum wage. If your state is not listed, you should pay employees at least the federal minimum wage. How much is minimum wage in your state?
|California||$10.50 for employers with 25 or fewer employees
$11.00 for employers with 26 or more employees
|District of Columbia||$12.50|
|Minnesota||$7.75 for small employers
$9.65 for large employers
|Nevada||$7.25 for employees with qualifying health benefits made available to them
$8.25 for all other employees
|Oregon||Standard minimum wage: $10.25
Portland Metro minimum wage: $11.25
Nonurban Counties minimum wage: $10.00
(See Oregon Minimum Wage chart)
Local minimum wage
Some cities create a local minimum wage. So far, local base wages are most common in big cities. If your city’s minimum pay rate is greater than the state and federal minimum wage, you must pay employees the local minimum.
For example, the minimum wage in San Francisco is $14.00. Employers in San Francisco must pay employees at least the local base wage because it is greater than the state and federal minimums.
Check your locality’s laws to find out if there is a local minimum wage.
Exceptions to minimum wage
There are some exceptions to paying your employees minimum wage.
Minimum wage for tipped employees
The FLSA permits a tip credit, which reduces the federal minimum wage for tipped employees. Tipped employees can have a lower base wage because their tips should make up the rest of their wages. The tipped minimum wage is $2.13. This applies to employees who earn more than $30 in tips per month.
Individual states can also have minimum wage laws for tipped employees. Check your state’s minimum wage laws to learn more.
Youth minimum wage
The FLSA also permits a special youth minimum wage. You can pay employees under age 20 a wage of $4.25 for the first 90 days of employment. Some states have a youth minimum that is greater than the federal youth minimum wage.
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This article is updated from its original publication date of 3/22/2012.