State Vs. Federal Minimum Wage

The Fair Labor Standards Act sets federal minimum wage standards, while state governments set state minimum wages. While some states have higher minimum wage standards than federal law, others have the same rate or none at all. During your time as an employee, manager or business owner, it will be important to understand the difference between federal and state minimum wage rules.

Federal Minimum Wage Criteria

The U.S. Department of Labor administers the FLSA. As of time of publication, under the FLSA, private sector employers must pay nonexempt employees no less than the federal minimum wage of ​$7.25​ per hour. Nonexempt means the employee is not excluded from FLSA minimum wage and overtime pay standards; this applies to most hourly employees.

General State Criteria

Each state's labor department administers state minimum wage policies. According to the U.S. Department of Labor, where both federal and state minimum wage laws apply, an employer must pay the employee at the higher rate. At the time of publication, only Tennessee, Mississippi, Alabama, Louisiana and South Carolina do not have minimum wage laws. In these cases, employers apply the federal minimum wage.

Tipped Workers Rules

The FLSA says tipped employees – such as restaurant servers – who frequently earn more than ​$30​ in tips monthly are entitled to direct hourly wages of ​$2.13​ if that amount plus their tips equal at least the federal minimum wage. If not, the employer must pay the employee the variance. Some states require higher direct wages for tipped workers. In this case, the greater rate applies.

Exempt Employees Facts

Exempt employees are excluded from federal or state minimum wage and overtime laws. These workers are usually employed in executive, professional, administrative, outside sales, and, in some cases, computer fields. They are not entitled to the regular minimum wage; however, the federal and state government has minimum standards that dictate how exempt employees should be compensated. For example, under federal law, exempt salaried employees must receive at least ​$684​ per week, or ​$35,568​ per year.

State law may set different pay standards for exempt employees. For example, California mandates a minimum monthly salary of twice the state minimum wage for full-time employment.

Exceptions to Minimum Wage Rules

Consult the federal or state labor department for clarification on minimum wage practices, as there are exceptions. For example, under federal law, workers with disabilities may be paid at special minimum wages, which must be comparable to their individual productivity.

For full-time students in certain industries, such as retail and agriculture, an employer may obtain a certificate from the federal labor department that allows it to pay the employee at no less than 85 percent of the federal minimum wage. An employer may compensate youths under 20 at the reduced minimum wage of ​$4.25​ per hour for the initial 90 days of employment, providing it does not result in the displacement or removal of other employees.