Minimum Wage


What Is a Minimal Wage?

A minimal wage is the bottom wage per hour {that a} employee could also be paid, as mandated by federal regulation. It’s a legally mandated worth ground on hourly wages, under which nonexempt employees might not be provided a job or comply with work.

Key Takeaways

  • The minimal wage is a legally mandated base pay for nonexempt hourly employees.
  • The federal minimal wage in the US as of 2022 is $7.25 per hour.
  • States and native municipalities can set their minimum-wage charges, however the state price have to be above the federal price to qualify.
See also  A Penalty-Free Way to Get 529 Money Back

Understanding a Minimal Wage

Minimal-wage legal guidelines have been first launched in Australia and New Zealand in an try to boost the earnings of unskilled employees. Most trendy developed economies, in addition to many creating economies, implement a nationwide minimal wage. Exceptions embody Italy, Sweden, Norway, and Singapore.

The primary minimum-wage regulation in the US appeared in 1912 when Massachusetts set a minimal hourly price for ladies and kids underneath age 18.

In 1938, the federal authorities established a minimal wage of $0.25 underneath the Honest Labor Requirements Act (FLSA). Adjusting for inflation, that wage is price $4.94 at the moment.

As of 2022, the federal minimum-wage price in the US is $7.25 per hour, until the employee falls right into a class particularly exempted from FLSA.

The federal government periodically assesses the federal minimal wage degree with adjustments in inflation or the price of dwelling and the speed has not elevated since July 2009. The Honest Minimal Wage Act of 2007 ordered the minimal wage to be raised from $5.15 in three increments, rising to $5.85, $6.55, after which lastly to $7.25.

President Joe Biden campaigned to boost the federal minimal wage. As of Feb. 3, 2022, the minimal pay for presidency employees, aside from U.S. Postal Service and Postal Regulatory Fee workers, elevated to $15 per hour.

Federal Minimal Wage vs. State Minimal Wages

Despite the fact that the US enforces a federal minimal wage, particular person states, cities, and localities might go completely different minimum-wage necessities so long as the stipulated hourly wage just isn’t decrease than the federal minimal wage. An employer who’s topic to the federal and state minimal wage requirement should pay the upper of the 2.

States normally set a minimal wage that’s reflective of the value of dwelling within the area. For instance, the state of Massachusetts has a minimal wage of $14.25 per hour, growing to $15 in 2023, whereas Montana has a minimal wage price of $9.20.

As of 2022, minimum-wage charges exceeded the federal price in 30 of the 50 states. At $15.20 per hour, the District of Columbia has the best minimal wage. The second highest is $15, paid in elements of New York and by employers with greater than 25 workers in California; the third highest is $14,49, the minimal wage in Washington State.

As of Jan. 1, 2022, solely 5 states haven’t adopted a state minimal wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.

The map under reveals the minimal wage set at every state degree. Some states have set their minimal wage greater than the federal minimal wage, others have matched the federal price, and a choose few don’t have a minimum-wage requirement. Within the latter case, the federal minimal wage of $7.25 will apply.

Some states have particular exceptions to their minimal wage guidelines:

  • Georgia and Wyoming each have a minimal wage of simply $5.15. Nevertheless, workers coated underneath the FLSA are topic to the federal minimal wage of $7.25.
  • In Minnesota, small employers with annual gross sales of lower than $500,000 pay a minimal wage of $8.42—somewhat than the common state minimal of $10.33.
  • In Nevada, the minimal wage is presently $1 lower than the required minimal if well being advantages are included. As of Jul. 1, 2024, a $12 minimal wage for all workers will change the present two-tier system, supplied a measure on the Nov. 8, 2022, poll passes. The measure is presently passing with 83% of the votes in.
  • In Oklahoma, the minimal wage is $2 for employers with fewer than 10 full-time workers at any single location and employers with $100,000 or much less in annual product sales.

Quick Information

Florida residents voted in November 2020 to extend the state’s minimal wage incrementally, starting at $10 per hour on Sept. 30, 2021, till it reaches $15 per hour in September 2026.

Equally, in November 2022, residents of Nebraska handed laws to boost the minimal wage in that state to $15 an hour in 2026, a rise of $6 over the present minimal wage of $9.

State Minimal Wages vs. Municipal Minimal Wages

In some circumstances, cities and municipalities inside a state might set the next minimal wage for residents who dwell inside areas with greater prices of dwelling. Inside the state of Illinois, the place the minimal wage is $12, the town of Chicago has a minimal wage of $14–$15 for sure industries enacted in January 2022.

Minimal-Wage Exceptions

Sure classes of employees have typically been exempt from being coated by minimum-wage legal guidelines.

Tipped Staff

Low-wage laborers in the US could be exempt from the minimal wage if a large portion of their earnings is derived from suggestions. A decrease minimal wage of $2.13 per hour might apply to tipped workers who usually obtain greater than $30 in suggestions per thirty days—or if the overall suggestions retained along with the hourly wage price are equal to or better than the federal minimal wage. The place the worker’s whole suggestions and hourly price fall under the minimal wage, the employer is anticipated to compensate the worker for the shortfall.

College students

A full-time scholar working for a college, retail retailer, or service institution can’t be paid lower than 85% of the minimal wage. Though college students may fit as much as eight hours per day, they can not work greater than 20 hours per week when faculty is in session. College students in a technical or vocational program can’t be paid lower than 75% of the minimal wage all through their energetic enrollment in this system.

Workers Below 20 Years Previous

Staff underneath 20 years of age could also be paid $4.25 per hour by federal regulation till they go a three-month probationary interval. After that, the employer should convert their pay construction to the federal minimum-wage price.

Staff With Bodily or Psychological Disabilities

Staff with bodily or psychological disabilities could be paid lower than the federal minimal wage, in line with the FLSA. Disabilities that may have an effect on manufacturing capability embody blindness, cerebral palsy, alcohol and drug habit, psychological sickness, and developmental disabilities.

The $15 Minimal Wage

Minimal-wage legal guidelines have been designed to finish the exploitation of workforces and be certain that a rustic’s working inhabitants doesn’t fall under the poverty line. The Honest Labor Requirements Act (FLSA) established the minimal wage affecting full-time and part-time employees within the personal sector and federal, state, and native governments.

In 2022, debate surrounds the institution of a $15 minimal wage. President Joe Biden’s American Rescue Plan tried to boost it. Nevertheless, the Biden administration solely succeeded in elevating the minimal hourly wage of presidency workers to $15.

Proponents argue that a rise within the minimal wage helps meet the objective of a dwelling wage, the place workers earn sufficient earnings for a passable lifestyle. In addition they declare a lift will increase employee productiveness, reduces earnings inequality, spurs financial progress, and improves worker retention.

$15 Per Hour

Many corporations—amongst them Amazon, Goal, Aldi, Chipotle, and CVS—have elevated their hourly price to $15 per hour, impartial of a compulsory federal minimum-wage enhance.

Critics argue that corporations, not the federal government, ought to determine how a lot workers must be paid and {that a} minimal wage doesn’t all the time enhance the spending energy of a inhabitants and may as an alternative result in greater unemployment. A small change within the worth for low-wage labor might have a big impact on employer demand, they are saying, resulting in growing unemployment amongst low-wage employees. Minimal-wage legal guidelines can also result in job outsourcing, through which corporations might determine to maneuver their services to nations the place labor prices are decrease, critics notice.

What Are Effectivity Wages?

Effectivity wages are the extent of wages paid to employees above the minimal wage in an effort to retain a talented and environment friendly workforce. Effectivity wage principle posits that an employer should pay its employees extremely sufficient that employees are incentivized to be productive and that extremely expert employees don’t give up. 

Which State Has the Lowest Minimal Wage?

Georgia and Wyoming each have a minimal wage of simply $5.15. Nevertheless, employers in these states topic to the Honest Labor Requirements Act should pay their workers the $7.25 federal minimal wage. The identical guidelines apply to the 5 states that don’t have any minimal wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.

Is the Minimal Wage Meant to Be a Dwelling Wage?

A dwelling wage is the minimal earnings deemed obligatory for a employee to fulfill their fundamental wants. In 2021, the U.S. poverty degree for a household of 4 was an earnings of $26,500, which equates to $13.25 per hour—above the present minimal wage. Critics argue that the federal minimal wage, which has didn’t sustain with the price of dwelling for the reason that late Nineteen Sixties, doesn’t meet this criterion and fails to fulfill the living-wage customary.

The Backside Line

The Honest Labor Requirements Act (FLSA) is the federal regulation that established the minimal wage, which is $7.25 per hour in 2022. The federal government periodically assesses the federal minimal wage degree. Nevertheless, the speed has not elevated since July 2009. Particular person states, cities, and localities might go completely different minimal wage necessities so long as the speed is greater than the federal minimal wage price.