This article was written by James Callan, Payroll Specialist at Helpside.

Paying employees correctly is crucial to running a compliant and effective business. There are many elements that contribute to how an employee’s pay is determined: scheduling, employee classification, position, and more. Another factor that affects pay is minimum wage. Minimum wage clarifies how much you must pay your employees, though minimum wage can vary based on state laws or other factors. Here is everything you need to understand minimum wage:

What is minimum wage?

In 1938, Congress passed the Fair Labor Standards Act (FLSA) and thus establishing the nation’s first federal minimum wage. The goal was to stabilize the post-depression economy and provide protection to workers from exploitation. Minimum wage is the lowest hourly rate a nonexempt employee can be paid as established by federal law. A nonexempt employee is an employee who is eligible for minimum wage and overtime pay according to the FLSA while an exempt employee is exempted from minimum wage and overtime pay. An employee’s exempt status is determined by several criteria. If you want to know if an employee is exempt or not, download our worksheet by clicking the button below.

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More than 143 million American workers are protected or covered by the FLSA, and this is enforced by the Wage and Hour Division of the U.S. Department of Labor. There are two ways that an employee can be covered by the law: Enterprise Coverage and Individual Coverage.

Enterprise coverage: Employees that work for certain organizations or businesses are covered by FLSA. These enterprises which must have at least two employees are:

  1. those that have an annual dollar volume of sales or business done of at least $500,000.
  2. Hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies.

Individual coverage: When there is no enterprise coverage, employees are protected by the FLSA if their work regularly involves them in interstate commerce. The FLSA covers individual workers who are engaged in commerce or in the production of goods for commerce.

Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other states, handle records of interstate transactions, travel to other states on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the state.

Also, domestic service workers (such as housekeepers, full-time babysitters, and cooks) are normally covered by the law.

How much is the current minimum wage?

As of 2022 the federal minimum wage is $7.25 an hour. However, many states and local municipalities have set their own minimum wage. Keep in mind that if the local minimum wage is lower than the federal rate, employers must match the federal rate of $7.25 an hour. If the local laws have established a higher minimum rate, then that is the rate that must be paid. Some of these states include Alaska, Arizona, Washington, Oregon, Michigan, and many others.

There are several exemptions to the minimum wage law. Some of the more notable ones are listed below.

Tipped Employees:

Any worker that earns regular tips that amount to at least $30 a month as per FLSA is eligible for a lower minimum wage rate of $2.13 per hour. However, if the wage and tips combined do not equal federal minimum hourly wage, the employer must make up the difference. Accurately tracking employee hours, wages, and tips is important for employers with these types of employees.

Minors and young workers:

The Youth Minimum Wage Program” allows employees under the age of 20 to be paid a special minimum wage of $4.25 per hour for the first 90 days of employment with any employer. Once the initial 90 days have passed (or when the employee turns 20, whichever comes first) the employee must be given a raise to the full minimum wage. If you have questions about youth employment and correctly paying these employees, please reach out to the team at Helpside for additional guidance.

Employees with disabilities:

Under the FLSA any employer can pay sub-minimum wage to any worker with a physical or mental impairment that affects the amount and/or quality of their work. In order to do this, employers must apply for a certificate from the Department of Labor which will allow them to pay disabled workers at sub-minimum wage rates.

Minimum wage exempt organizations:

Certain nonprofit and educational organizations can apply for a certificate from the Department of Labor allowing them to hire workers for as little as 85% of the applicable minimum wage.

Paying employees correctly is vital to running a successful business. Our team at Helpside can help you with any questions regarding minimum wage and make sure you are adhering to all the minimum wage laws specific to your situation.