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Minimum Wage

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The federal minimum wage is the lowest hourly wage an employer can legally pay, with some exceptions. Nearly 1.6 million Americans, 1.9% of hourly workers, make the federal minimum wage of $7.25 an hour.

It was established in 1938 as part of the Fair Labor Standards Act as a way to set a fair guideline for worker pay, as well as to boost the post-Great Depression economy.

At the time it was established, it was 25 cents an hour. It’s been increased periodically over the years, the last time in 2009. Some workers can be paid less than the hourly wage, and self-employed workers and tip workers come under different rules.

States can set their own minimum wages, and so can local governments.

Federal Minimum Wage vs. State

A state doesn’t have to have a minimum wage law, but as of 2021, 29 states and Washington, D.C., did. A state with its own law can make the wage lower, equal to or higher than the federal minimum wage.

Federal minimum wage overrides state if the state wage is lower. It doesn’t if the state wage is higher. Hourly workers who come under Fair Labor Standard Act guidelines, which most hourly workers do, always get the higher wage. Some cities have higher minimum wage laws than their state wage. In those cases, too, the higher wage prevails.

If a state has no minimum wage law, the federal wage prevails.

What Happens if a State’s Minimum Wage Is Lower Than the Federal Minimum Wage?

In places where the state minimum wage is lower than the federal wage, workers who come under the Fair Labor Standards Act earn the federal wage.

If workers don’t come under the FLSA, they can be paid less. Georgia, Oklahoma and Wyoming have minimum wages lower than the federal wage.

Georgia and Wyoming’s are both $5.15 an hour. In Oklahoma employers pay the federal minimum wage if their business is a certain size that’s more generous than federal requirements. If not, workers get $2 an hour.

Do States Have to Follow the Federal Minimum Wage?

States are required to follow federal minimum wage law. States can pass their own laws to make the wage higher, equal to or lower than the federal law, but they can’t make other changes that overrule the federal law, for instance, who is exempt or how many hours constitutes a work week.

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Federal Minimum Wage

The federal minimum wage is $7.25 an hour at the start of 2021. The wage was last increased in 2009, the longest it has ever gone without an increase.

The act also requires that workers who are paid by the hour get an overtime rate of 1.5 times the standard wage for more than 40 hours worked in a week and sets rules for child labor, equity and more.

Exceptions to Federal Minimum Wage

Some hourly workers can be paid less than the federal minimum wage, though an employer can’t just decide who to pay less.

Employers that come under the FLSA must get a certificate for exempt workers that’s issued by the Wage and Hour Division of the federal Department of Labor.

Businesses that come under federal wage rules have annual sales of at least $500,000 or are engaged in interstate commerce. Any business that gets or sends mail to another state, makes phone calls to or takes orders from another state is engaged in interstate commerce, so that’s most businesses.

Employee exceptions to the federal minimum wage for FLSA businesses are:

  • Vocational education students 16 or older in jobs they’re studying for, referred to “student learners” in federal law, may be paid 75% of the federal minimum.
  • Full-time students in retail or service jobs, agriculture or higher education institutions may earn 85% of the federal minimum.
  • Workers under age 20 may earn $4.25 for their first 90 calendar days (not work days) before getting the full minimum.
  • People who have a physical or mental disability that impairs their ability to fully earn or be productive, don’t have to be paid the minimum wage.

Tipped Employees

The federal minimum wage for tipped employees is $2.13 an hour. Tipped workers aren’t the same as workers who are exempt from the federal minimum. Tips, added to the lower hourly wage, must meet the federal minimum.

Many state laws have other provisions for tipped pay, but they are still required to meet the federal hourly minimum of $7.25 with a combination of pay and tips, and to pay at least the federal minimum of $2.13 an hour.

Federal Rules Don’t Apply

Businesses that don’t come under FLSA rules may be seasonal amusement parks, newspapers with circulations less than 4,000, small farms and more. If you’re not sure if your job qualifies, and you’re being paid less than minimum wage, check with your state’s labor office.

Self-employed and contract workers also don’t come under minimum wage rules, and the IRS has strict rules about who qualifies as self-employed and who doesn’t.

Minimum Wage by State

As of Jan. 1, 2021, 29 states and Washington, D.C. had their own minimum wage. Some of the states have complex structures for who gets paid what and how the wage increases annually, and 15 states have areas with different minimum wages. It’s best to check your state’s government website to find out how it works in your state.

Minimum Wage by State

  • Alabama $7.75
  • Alaska $10.34
  • Arizona $12.15 (increases annually based on cost of living) $15/$12 tipped wage in Flagstaff
  • Arkansas $11
  • California $14 (increases to $15 Jan. 1, 2022; rises annually with consumer price index beginning in 2023; several cities have higher wage)
  • Colorado $12.32/$14.77 in Denver
  • Connecticut $12 (increases to $13 Aug. 1, 2021 step increases to $15 June 1, 2023; employment cost index beginning 2024)
  • Delaware $9.25
  • Florida $8.65 (COL annual increase)
  • Georgia $5.15 ($7.25 for FLSA employees)
  • Hawaii $10.10
  • Idaho $7.25
  • Illinois $11 ($12 beginning Jan. 1, 2022, rises $1 a year through Jan. 1, 2025) $14/$8.40 tipped wage in Cook County
  • Indiana $7.35
  • Iowa $7.25
  • Kansas $7.25
  • Kentucky $7.25
  • Louisiana $7.25
  • Maine $12.15 (CPI annual increase) $13 in Portland beginning 2022, rises $1 a year through 2024, then COL annual increase)
  • Maryland $11.75 (step increases to $15 in 2025) $3.63 tipped wage; $14/$4 in Montgomery County
  • Massachusetts $13.50 ($14.25 in 2022; $15 in 2023)
  • Michigan $9.87 (annual step increases to $12.05 Jan. 1, 2030)
  • Minnesota $10.08; $13.25 in Minneapolis; $12.50 in St. Paul; all rates include tipped wages.
  • Mississippi $7.25
  • Missouri $10.30 ($11.15 beginning Jan. 1, 2022; $12 in 2023; COL annual increase/decrease beginning 2024); $5.15 tipped wages;
  • Montana $8.75 (COL annual increase)
  • Nebraska $9
  • Nevada $9 without health benefits; $8 with (annual increases to $12 July 1, 2024)
  • New Hampshire $7.25
  • New Jersey $12 (annual increases to $15 in 2024, then CPI annual increase)
  • New Mexico $10.50 (annual increases to $12 in 2023) $12.10 in Santa Fe City; tipped wage varies in five counties.
  • New York $12.50 base, $15 for some New York City workers, ranges from $14-15 based on industry and region; all increase to $15 Dec. 31, 2021.
  • North Carolina $7.25
  • North Dakota $7.25
  • Ohio $8.80/$7.25 for employers grossing $299,000 annually or less.
  • Oklahoma $7.25 for businesses with at least 10 full-time employees at any one location; annual sales over $100,000 with any number of employees/ $2 otherwise for non FLSA workers.
  • Oregon $12, $13.25 in Portland urban area, both include tipped wage ($13.50,$14.75 by July 1, 2022)
  • Pennsylvania $7.25
  • Rhode Island $11.50
  • South Carolina $7.25
  • South Dakota $9.45 (annual indexed increases)
  • Tennessee $7.25
  • Texas $7.25
  • Utah $7.25
  • Vermont $11.75
  • Virginia $7.25
  • Washington $13.69, $16.69 in Seattle, SeaTac $16.57, all include tipped wages (annual indexed increases)
  • Washington, D.C. $15 (annual CPI increases beginning July 1, 2021)
  • West Virginia $8.75
  • Wisconsin $7.25
  • Wyoming $5.15 ($7.25 for FLSA employees)

Will the Minimum Wage Increase?

The U.S. House of Representatives has included a federal minimum wage raise to $15 an hour by 2025, in the $1.9 million coronavirus relief package.

If it passes as written, it would go into effect 30 days after passage. Minimum wage hourly workers would get a raise to $9.50 an hour, and tipped workers’ wage would be $4.95. The wage would rise to $11 in 2022, with the tipped wage increasing to $6.95. Yearly increases would bring both to $15 in 2025.

The Raise the Wage Act would:

  • Index increases after 2025
  • Phase out subminimum wage for tipped workers
  • Phase out subminimum wage for workers under 20
  • End subminimum wage certificates for workers with disabilities

The relief package passed the House, but also has to be approved by the Senate, where it will get a tougher reception.

The wage hike is favored by President Joe Biden, who proposed it in his America Rescue Act on Jan. 20. He also favors eliminating the separate wage for tipped employees and sub-minimum wage for people with disabilities.

If it doesn’t pass, some in Congress have indicated they would favor a wage hike that’s not as steep as the proposed $15.

Pros and Cons of a $15 Minimum Wage

Pros of a $15 Minimum Wage

  • Nearly 32 million Americans who work full-time at minimum wage would get a $3,300 raise once it’s at $15.
  • Many workers who currently make just above the minimum wage, would get raises.
  • Many minimum wage earners are essential and frontline workers who have had to show up for work during the pandemic, including one-third of those working in residential or nursing care facilities.
  • It would lift 900,000 Americans out of poverty, increasing income in 6 in 10 working families whose total family income is below the poverty line.
  • It would reduce racial and gender inequality, with raises for nearly one-third of Black workers, one-quarter of Latinos and 60% of women.
  • Accelerate economic recovery by giving more spending power to low-wage workers and their families.

Cons of a $15 Minimum Wage

  • It would increase the federal budget deficit by $54 billion in the 10-year period between 2021 and 2031.
  • It would increase prices for goods and services as businesses strive to pay higher wages.
  • It would raise wages of non-minimum wage workers, putting more of a burden on businesses.
  • It would eliminate 1.4 million jobs as businesses try to make payroll.

The Typical Minimum Wage Employee

The Raise the Wage Act says that because of the 12-year lag in increasing the minimum wage, “there is now no place in America where a full-time worker making the federal minimum wage can afford rent, food, and other essentials.”

The typical minimum wage employee is young, more likely to be female and more likely to not have a high school diploma, according to 2019 federal statistics. They are also more likely to be single and work part time, rather than full-time.

About 75% of those earning the minimum wage or less in 2019 were employed in service occupations, mostly in food preparation.

The states with the highest percentages of hourly paid workers earning at or below minimum wage are South Carolina (5%), Louisiana (5%) and Mississippi (4%).

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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