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How Much is Minimum Wage?

The labor laws in the United States can be, at times, very confusing. Ever wonder why waiters at a restaurant can be paid as little as $2.13 while the federal minimum wage is over three times higher? How much is the minimum wage? Why is overtime pay 1.5x regular pay for nonexempt employees but not required for exempt employees? What does exempt actually mean?

All those questions and more are governed by the Fair Labor Standards Act of 1938 [3] (FLSA) which has, over the years, been amended several times to reflect changing times, most notably the include anti-discrimination laws and to raise the minimum wage. The most recent change was the Fair Minimum Wage Act of 2007, signed by President Bush, which raised the federal minimum wage in increments to where it stands today.

We’ve updated the figures below for 2012. Federal minimum wage remains at $7.25 an hour.

Federal Minimum Wage

As of Jan. 1, 2010, the federal minimum wage is $7.25 an hour. This was the final increase in a series of increases written into the Fair Minimum Wage Act of 2007.

In recent years the rates have been far lower – $5.86 in 2008 and $5.15 in 2007.

Workers Who Receive Tips

As for wait staff, the reason they can be paid as little as $2.13 by their employer has to do with a clause in the law governing minimum wage, the Fair Labor Standards Act. The employer of a tipped employee only needs to pay $2.13 an hour in direct wages if that, plus their tips, equals the minimum wage. In addition, the employee must retain all tips and they must receive, customarily and regularly, more than $30 a month in tips. If the tips plus the direct wages don’t exceed the minimum wave, the employer must make up the difference.

That’s the federal standard, state standards may be higher. Here is a state-by-state breakdown for tipped employees [4] by the DOL. As you can see, several states don’t permit an employer to take a tip credit and thus they must pay the full minimum wage rate, as is the case in Alaska, California, Montana, Nevada, Oregon, and Washington. Other states have varying tip credit amounts and rules defining a tipped employee.

State Minimum Wage

Seventeen states, and one district, have minimum wage laws that put the state minimum wage above the $7.25 an hour Federal minimum wage. Those states are:

The remaining states have rates that are the same as the federal, no minimum wage law (AL, LA, MS, SC, TN), or rates below the federal minimum wage rate (AR, GA, MN, WY).

As for the other two questions in the opening paragraph, overtime pay is also governed by the FLSA and you can read this OT factsheet [5] for more information. I was surprised to learn that the FLSA doesn’t require overtime pay for work on weekends, holidays, or regular days of rest.

Finally, an exempt employee is someone exempt from certain parts of the FLSA and usually applies to employees who receive an annual salary. If you’re an exempt employee, your employer is not required to pay overtime (sorry).

That about covers the major points about minimum wage, the laws that govern them, and why tipped employees can be paid as little as $2.13 an hour. If you have any more questions, leave them in the comments and I hope to address them!