Understanding the Federal Minimum Wage

What is the federal minimum wage?

Minimum wage is a rule, set by the Fair Labor Standards Act (FLSA), that tells employers the lowest hourly wage they can pay their employees. The federal minimum wage is currently $7.25. The federal minimum wage has not changed since 2009. Prior to that, federal minimum wage history showed few fluctuations, raising less than 50 cents to $1 per year since 1938.

Can states have a higher minimum wage than the federal standard?

Yes, individual states can implement their own minimum wage law, meaning the minimum wage by state varies. When a state’s minimum wage doesn’t match the federal standard, hourly workers must be paid the higher of the two amounts.

Cities or counties can also impose a minimum wage. In that case, an employer must pay the highest applicable minimum wage.

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What is the minimum wage in each state?

Twenty-nine states and D.C. have minimum wages above the federal minimum wage. These vary by state, and in many states, wages are set to incrementally increase over the next few years. For the five states without a minimum wage, the federal minimum wage applies. For more information on the minimum wage plans for each state, see below. You can also download a federal minimum wage poster or one for any state in question.


Who is covered by the federal minimum wage?

Generally, nonexempt employees are guaranteed to earn at least the federal minimum wage. Employees who are paid on an hourly basis are usually considered nonexempt, regardless of their hourly pay rate. Employees generally classified as nonexempt include, but are not limited to, clerical, blue-collar, maintenance, construction, and semiskilled workers, as well as technicians and laborers.

What about workers who make tips?

Generally, tipped employees are considered those who regularly take home more than $30 per month in tips. They may be paid less than the standard hourly minimum in some states, as long as tips bring their pay up to at least the applicable minimum wage.

Take a look at this Department of Labor Fact Sheet to see who qualifies as a tipped employee, but be sure to check local requirements as well.

Is the federal minimum wage going up?

There are no current plans to raise the federal minimum wage.

The idea of increasing the minimum wage is a popular one among organized labor and anti-poverty groups, who are pushing for $15 an hour as the new standard. A recent Pew Research Center survey of American voters found that support for a $15 minimum wage has increased to 67 percent, with 41 percent strongly in favor.

What are some of the arguments supporting the federal minimum wage increase?
  • Minimum wage hasn’t kept up with inflation and many minimum wage workers (especially those with families of three or more people) are impoverished.
  • People will have more money to spend and amplify the growth of the economy.
  • Government expenses for social programs aimed at the poor may be reduced, resulting in lower taxes for other Americans.
  • More revenue for the government would be generated from payroll taxes for Social Security.
  • Net worker productivity has drastically increased since 1979 (almost 70 percent), but hourly pay has barely increased since then (only 11.6 percent after adjusting for inflation).
What are some of the arguments against the federal minimum wage increase?
  • Employers will be burdened, especially small companies, resulting in slower growth and decreased employment levels.
  • It provides an incentive for employers to invest in automated processes, technology, and machinery to increase productivity — this means less human resources.
  • Prices of products and services may be increased to offset higher labor costs.
  • Companies would have an increased incentive to outsource labor to countries where minimum wage rates are lower.
But minimum wages are increasing in states, right?

There are some states that have announced plans to reach a $15 minimum wage in the coming years, but there are many that haven’t. See what the minimum wage plans are in your state:

Whether you’re for or against a minimum wage increase, it’s important that you stay up to date on the topic for the health of your business. Talk to your lawyer if you have any questions.