As a small business owner, it’s critical to be aware of minimum wage laws in your state. And although there is no set Alabama state minimum wage, it’s important to make sure you’re current on regulations and prepared for upcoming changes so you can plan accordingly.
To help you, we’ve prepared a quick guide with details on the Alabama minimum wage.
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What is the minimum wage in Alabama?
While the minimum wage applies to most occupations and employees, there are a few exceptions, including:
- Tipped employees who earn at least $30 per month in tips. They must be paid a minimum of $2.13 per hour, and that amount plus tips must equal the minimum wage of $7.25.
- Employees under the age of 20. The Fair Labor Standards Act (FLSA) allows all of these employees to be paid a minimum wage of $4.25 per hour for their first 90 days of employment. After the 90 days have passed, these employees must be paid the full minimum wage.
- Full-time students. Full-time vocational students may be paid a sub-minimum wage rate (75 percent of the applicable minimum wage). Full-time students employed in retail or service stores, agriculture, or at colleges and universities may be paid a sub-minimum wage rate of 85 percent of the applicable minimum wage.
- Certain disabled workers (with a certificate from the Alabama Department of Labor).
- Overtime workers Overtime pay in Alabama also follows the federal minimum wage standards, and is 1.5 times the minimum wage (so, $10.88) for any hours worked over 40 in a standard week.
Because there are no Alabama state minimum wage laws, all employers and employees are subject to federal exemption standards set forth by the FLSA.
Will the minimum wage change?
As of now, there are no plans to raise the Alabama minimum wage.
However, there’s been an ongoing battle by workers in Birmingham to raise the city’s minimum wage. In February 2016, the city of Birmingham passed legislation to raise the city’s minimum wage from $7.25 per hour to $10.10 per hour. Immediately following that, the state legislature passed a law barring municipalities from setting their own minimum wage, effectively reversing the Alabama minimum wage increase.
Since then, the NAACP, a group of fast-food workers, and other labor groups have filed a lawsuit in federal district court, challenging the state law. Initially, it was dismissed, but in July 2018, the 11th U.S. Circuit Court of Appeals ruled that Alabama’s “preemption law” (i.e., using state law to override a local ordinance) violated the 14th Amendment’s equal protection rights. However, the full appellate court upheld the district court’s dismissal of the case, and the Alabama minimum wage is still $7.25.
While this ruling doesn’t change anything, the case could set a precedent for other cities battling states for minimum wage increases.
How should small business owners prepare for changes to the minimum wage?
While there’s currently no plan to raise Alabama’s minimum wage, it’s smart to plan ahead for potential changes. Here are key steps you should take to ensure your business is ready:
- Reassess your staffing: Take stock of your monthly sales and expenses to determine if your current staffing levels are appropriate. Once you review your monthly cash flow, reevaluate your current staffing plan and determine if adjustments are necessary.
- Hire the right employees: Finding employees isn’t easy; it takes time and money. If you follow best hiring practices, though, you’re more likely to find the right employees the first time around. Once you find the right people, work hard to keep them motivated. If your employees are motivated, they’ll be more engaged, happier, and more likely to stick around. And make sure to get a free EIN so you can start paying them right away.
- Upgrade your technology: Make your operations more efficient by automating time-consuming tasks, with tools such as automatic payroll. Free up time to focus on management issues like staffing and growing your business with Square Payroll software and its custom payroll features and small business pricing.
As always, to make sure your business is prepared for anything and stays in compliance, stay up to date with our COVID-19 small business resources and discuss Alabama minimum wage laws with your accountant and lawyer.