Minimum wage requirements are a crucial aspect of employment law, setting the baseline for worker compensation. This topic explores federal, state, and local minimum wage laws, along with exemptions and special provisions for tipped employees.

The chapter delves into overtime pay requirements, recordkeeping obligations, and enforcement mechanisms. It also examines the ongoing debate surrounding minimum wage increases, their economic impact, and the arguments for and against higher wages.

Federal minimum wage

• The federal minimum wage sets the baseline hourly rate employers must pay covered employees under the Fair Labor Standards Act (FLSA)
• As of 2021, the federal minimum wage is $7.25 per hour and has remained unchanged since 2009
• Employees covered by the FLSA are entitled to the federal minimum wage, unless their state or local laws mandate a higher minimum wage

State vs local minimum wage

• States and local governments can establish their own minimum wage rates, which may be higher than the federal minimum wage (California, Washington)
• When there is a difference between the federal, state, and local minimum wage rates, employees are entitled to the highest applicable rate
• Some states have no minimum wage laws (Alabama, Louisiana), while others have minimum wages lower than the federal rate (Georgia, Wyoming), in which case the federal minimum wage prevails

Exemptions to minimum wage

• Certain employees are exempt from the federal minimum wage requirements, such as executive, administrative, and professional employees who meet specific salary and job duties criteria
• Other exemptions include outside sales employees, certain computer professionals, and employees of certain seasonal amusement or recreational establishments
• Some agricultural workers, such as those employed on small farms or those engaged in range production of livestock, are also exempt from the federal minimum wage

Tipped employee minimum wage

• Tipped employees, such as waiters and bartenders, can be paid a lower direct cash wage by their employers, as long as the sum of their direct wage and tips equals at least the federal minimum wage
• The federal tipped minimum wage is $2.13 per hour, and it has remained unchanged since 1991
• If a tipped employee's combined direct wage and tips do not meet the federal minimum wage, the employer must make up the difference

Overtime pay requirements

• The FLSA requires employers to pay covered employees overtime pay at a rate of no less than one and one-half times their regular rate of pay for hours worked beyond 40 in a workweek
• Overtime pay is calculated based on the regular rate of pay, which includes all non-discretionary compensation earned during the workweek (commissions, non-discretionary bonuses)
• Employers cannot average hours worked over multiple workweeks to avoid paying overtime

Overtime exemptions

• Certain employees are exempt from overtime pay requirements, such as executive, administrative, and professional employees who meet specific salary and job duties criteria
• Other exemptions include certain computer professionals, outside sales employees, and employees of certain seasonal amusement or recreational establishments
• Some agricultural workers and employees of certain small newspapers are also exempt from overtime pay requirements

Calculating overtime pay

• To calculate overtime pay, first determine the employee's regular rate of pay by dividing their total non-overtime compensation for the workweek by the total number of non-overtime hours worked
• Multiply the regular rate of pay by 1.5 to obtain the overtime premium rate
• Multiply the overtime premium rate by the number of overtime hours worked in the workweek to determine the total overtime pay owed

Recordkeeping for minimum wage

• Employers must maintain accurate records of employees' wages, hours worked, and other conditions of employment to demonstrate compliance with minimum wage and overtime requirements
• Records must be kept for at least three years and should include information such as employees' personal details, hours worked each day and workweek, regular hourly pay rates, and total wages paid each pay period

Timesheet requirements

• Employers must ensure that employees accurately record their time worked, including start and end times, meal breaks, and any overtime hours
• Timesheets can be maintained in various formats, such as paper, electronic, or through a time clock system
• Employers should have policies in place to ensure that employees accurately report their time and that supervisors review and approve timesheets

Payroll records

• Payroll records must accurately reflect employees' gross wages, deductions, and net wages for each pay period
• Employers must maintain payroll records that show the date of payment, pay period covered, and the employee's identifying information
• Payroll records should be maintained for at least three years and should be readily available for inspection by the Department of Labor

Minimum wage enforcement

• The U.S. Department of Labor's Wage and Hour Division is responsible for enforcing the FLSA, including minimum wage and overtime requirements
• Enforcement activities include conducting investigations, responding to complaints, and taking legal action against employers who violate the law

Department of Labor investigations

• The Wage and Hour Division may initiate investigations based on complaints or on its own initiative
• During an investigation, the Division will review the employer's records, interview employees, and gather other evidence to determine compliance with the FLSA
• If violations are found, the Division may seek back wages, liquidated damages, and civil money penalties

Penalties for violations

• Employers who violate minimum wage and overtime requirements may be subject to civil money penalties of up to $1,100 per violation
• Repeat or willful violations can result in higher penalties, up to $10,000 per violation
• In addition to civil penalties, employers may be liable for back wages owed to employees and an equal amount in liquidated damages

Minimum wage increases

• The federal minimum wage has remained unchanged since 2009, but there have been efforts to increase it at both the federal and state levels
• Some states and local governments have enacted laws to gradually increase their minimum wage rates over time (New York, California)

Cost of living adjustments

• Some states and local governments have tied their minimum wage rates to the Consumer Price Index (CPI) to ensure that the minimum wage keeps pace with inflation
• Cost of living adjustments (COLAs) are typically made annually based on changes in the CPI
• COLAs help maintain the purchasing power of minimum wage earners as the cost of goods and services increases over time

Political factors in wage increases

• Minimum wage increases are often a contentious political issue, with proponents arguing that higher wages are necessary to support low-income workers and critics claiming that increases lead to job losses
• Political factors, such as the party in power and public opinion, can influence the likelihood and extent of minimum wage increases
• In recent years, there has been growing support for a $15 federal minimum wage among progressive lawmakers and activists

Minimum wage impact

• The impact of minimum wage increases on employment and poverty rates is a subject of ongoing debate among economists and policymakers
• Some studies suggest that moderate minimum wage increases have minimal effects on employment, while others argue that increases lead to job losses, particularly among low-skilled workers

Effects on employment

• Critics of minimum wage increases argue that higher labor costs lead employers to reduce hiring, cut hours, or replace workers with automation
• Proponents contend that the employment effects of minimum wage increases are generally small and that higher wages can stimulate consumer spending and economic growth
• The extent of employment effects may depend on factors such as the size of the wage increase, the prevailing economic conditions, and the industry or region affected

Influence on poverty rates

• Supporters of minimum wage increases argue that higher wages can help reduce poverty by increasing the incomes of low-wage workers and their families
• Critics maintain that minimum wage increases are an inefficient way to reduce poverty, as many minimum wage earners are not members of low-income households (teenagers, secondary earners)
• The impact of minimum wage increases on poverty rates may depend on factors such as the distribution of wage gains, changes in employment, and the cost of living in a given area

Minimum wage debate

• The debate over minimum wage policy involves a range of economic, social, and political considerations
• Proponents and critics of minimum wage increases often disagree on the magnitude and distribution of the benefits and costs associated with higher wages

Arguments for higher minimum wage

• A higher minimum wage can improve the living standards of low-wage workers and their families, reducing poverty and income inequality
• Increased consumer spending resulting from higher wages can stimulate economic growth and job creation
• Higher minimum wages may reduce reliance on public assistance programs, saving taxpayer dollars

Criticisms of minimum wage

• Minimum wage increases can lead to job losses, reduced hours, and slower job growth, particularly for low-skilled and entry-level workers
• Higher labor costs may force businesses to raise prices, hurting consumers and reducing the purchasing power of the minimum wage
• Minimum wage increases are a blunt tool for reducing poverty, as many minimum wage earners are not members of low-income households