What is minimum wage?

Minimum wage protects employees from being taken advantage of by employers and ensuring them of a fair day’s pay for a fair day’s work. But what is the minimum wage? Are you required to be paid the minimum wage? Can an employer ever pay you less than minimum wage even if you are?

The Fair Labor Standards Act, passed in 1938, established the federal minimum wage. In 2009, the minimum wage was raised to $7.25 per hour. This wage rate doesn’t just apply to hourly employees; it applies to salaried employees and employees paid by commission as well. For example, your employer cannot pay you $200 per week because that hourly wage rate would be $5.00 per hour—your employer would have to pay you $290 per week to meet the $7.25 per hour minimum.

However, the FLSA only applies to employees, not independent contractors. The FLSA defines “employee” as an “individual who is employed by an employer,” and “employ” as “to suffer or permit to work.” Thus, an employee is one who suffers or is permitted to work. Courts have consistently held this definition of employee to be the broadest of the federal employment statutes.

Under the FLSA, the test for determining who is an employee depends on the economic realities of the worker’s dependence on the employer. This is called the “economic realities test.” Five factors are important: the degree of control exercised by the employer, the relative investments made by the worker and the employer, the worker’s opportunities for profit and loss, the skill and initiative required, and the permanency or duration of the relationship.

If an employer-employee relationship exists, the FLSA will apply only if there is individual coverage or if there is enterprise coverage.

An employee is covered by the FLSA, and thus required to be paid minimum wage, if he is engaged in work that is in or affecting interstate commerce. This is called individual coverage. Since the New Deal, work that is in or affecting interstate commerce has included most jobs, and “affecting interstate commerce” has been interpreted broadly. Thus, individual coverage of the FLSA includes most employees, such as those who produce goods that are sent out of states, those who regularly make telephone calls out of state, and those who handle interstate transactions. Especially with the introduction of the internet and electronic commerce, most workers will be engaged in or affecting commerce and will be protected by the FLSA.

Even if there is no individual coverage, there still may be enterprise coverage. An employee is covered by the FLSA if he is employed by an enterprise—any group of related activities performed under common control for a common business purpose—that has a total gross volume of $500,000 or more, and has at least two employees engaged in or affecting interstate commerce. These employers include hospitals, schools, and government agencies.

If the FLSA applies to an employer, the employer must pay its employees minimum wage except in a few circumstances: opportunity wages for youth, trainees, tipped employees, and deductions for meals.

Employees under twenty years of old only have to be paid $4.25 per hour for the first 90 days of their employment as an “opportunity” wage. After those first 90 days, the employee must be paid the full minimum wage.

Trainees are also not required to be paid the minimum wage if the employer can demonstrate that the training is similar to what the trainee would receive in vocational school and is for the benefit of the trainee, the trainee does not replace a regular employee and is not necessarily entitled to a job after training, and the employer does not derive any immediate advantage from the trainee’s work. Both the trainee and the employer must also understand that the trainee is not entitled to compensation during the training.

Further, employees who usually receive more than $30 per month in tips are only entitled to a minimum wage of $2.13 per hour. However, if the tips plus the $2.13 per hour do not average out to at least $7.25 per hour, the employer is required to make up the difference. For example, if an employee only makes $120 in tips for the week—an average of $3.00 per hour—and the employee is paid $2.13 per hour by the employer, the employee is only being paid $5.30 per hour, and the employer must pay an additional $1.95 per hour to get to $7.25 per hour.

Lastly, an employer can include non-cash benefits (meals or lodging) in calculating an employee’s wage.