What Is a Minimum Wage?
A minimum wage is a legally mandated minimum hourly rate of financial compensation an employer must provide a non-exempt employee. In other words, it is a compensation floor, or the least someone could possibly make in hourly pay while legally employed in a non-salaried role.
In the United States, the federal minimum wage—$7.25 per hour as of 2023—is established by the Fair Labor Standards Act (FLSA). This legislation also dictates that covered employees, in most cases, must be paid an overtime rate of 1.5x their typical wage for any hours worked beyond 40 per week.
Federal vs. State vs. Municipal Minimum Wages
In the U.S., employers and employees can be subject to multiple minimum wage requirements simultaneously. In addition to the federal minimum wage, which is enforced nationally, state and municipal governments may also enforce local minimum wage requirements. As of this article’s last update, 32 U.S. states and at least 42 U.S. cities maintained their own minimum wage requirements.
In places subject to multiple minimum wages, the highest applicable wage requirement is enforced. For instance, in Wyoming, the state minimum wage is $5.15 per hour, but employees must still be paid at least the federal minimum of $7.25 according to the Fair Labor Standards Act.
Municipal minimum wages are most common in larger cities and are typically higher than the associated state minimums in order to compensate workers for the higher cost of living associated with larger metropolitan areas. For instance, Seattle’s municipal minimum wage is $18.69 an hour compared to the state minimum of $15.74.
Minimum Wage vs. Living Wage: What’s the Difference?
While a minimum wage is the lowest amount someone can be legally paid by an employer, a living wage refers to the lowest amount a person or family could make and live comfortably (not in poverty) in their area.
This means having enough income to pay for necessities like rent, food, utilities, transportation, healthcare, and childcare without struggling to make ends meet. Most definitions of a living wage also stipulate that no more than 30% of a worker’s income should be needed to pay for their housing.
Because the cost of living varies significantly between different cities, counties, and states, what constitutes a living wage also varies considerably. But in almost every case, a living wage tends to be higher than the highest applicable minimum wage in a given area. In other words, almost no city or state enforces a minimum wage that is high enough for an individual or family making that wage to live comfortably.
Who Is Eligible for Minimum Wage in the U.S.?
All covered, non-exempt workers are eligible for the federal minimum wage in the U.S. But what exactly does “covered” mean in this context? The Department of Labor outlines coverage as follows.
Enterprise Coverage
Enterprise coverage applies to any employee of an “enterprise,” which the DOL defines as a business with at least two employees and annual sales of at least $500,000. According to the DOL, “hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies” also qualify as enterprises regardless of number of employees or annual revenue.
Individual Coverage
Those who don’t qualify for enterprise coverage may still be eligible for individual coverage if their work involves interstate commerce (e.g., if they travel interstate for work, produce goods that are eventually sold or used in other states, or deal with phone calls or records across states). Additionally, full-time domestic service workers (like cooks, nannies, and cleaners) are typically covered individually by the FLSA.
How Are Minimum Wage Laws Enforced?
The federal minimum wage and overtime requirements established by the Fair Labor Standards Act are ostensibly enforced by the Wage and Hour Division of the U.S. Department of Labor. According to the DOL, the division enforces the FLSA “using both enforcement and public education efforts.”
If an employee believes that their employer is failing to compensate them with a wage at or above the pertinent minimum or otherwise violating the FLSA, they can visit the nearest Wage and Hour Division office. A list of office locations and phone numbers is available on the DOL’s website.
Frequently Asked Questions (FAQ)
The following are answers to some of the most common questions surrounding minimum wage.
What Is the Current Federal Minimum Wage in the U.S.?
The federal minimum wage stands at $7.25 per hour as of this article’s most recent update. 30 states (and Washington, D.C.) have minimum wages higher than the federal minimum. Two states—Wyoming and Georgia—have minimum wages lower than the federal minimum and are thus subject to the federal minimum. Five states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—do not have local minimums and are thus subject to the federal minimum.
Which States Have the Highest Minimum Wages?
As of this article’s last update, the following states have the highest minimum wage requirements:
- Washington: $15.74 (living wage: $19.58)
- California: $15.50 (living wage: $21.24)
- Massachusetts: $15 (living wage: $21.35)
- New York: $14.20 (living wage: $21.46)
- New Jersey: $14.13 (living wage: $18.71)
How Does Minimum Wage Work for Tipped Employees?
Under federal law, an employee who makes $30 or more per month in tips is eligible for a lower minimum wage of $2.13 per hour. However, if their tips do not bring them up to $7.25 per hour or more on any given week, their employer is required to increase their compensation to meet that level.
State minimum wage requirements for tipped workers vary between states. In Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington, the same minimum wage requirements apply to both tipped and non-tipped workers. Other states either abide by the federal wage requirements for tipped workers or enforce their own tipped minimums that are lower than the non-tipped state minimum.
How Much Has Inflation Eroded the Value of the Current Minimum Wage Since It Was Established?
The current federal minimum wage of $7.25 per hour has been in place since 2009. Since then, inflation has caused the real value of that wage (in terms of purchasing power) to decrease. Statista maintains a graph comparing actual minimum wage with inflation-adjusted minimum wage in current dollar values.
