Everything You Want to Know About Minimum Wage

Everyone hears the term minimum wage and figures it means exactly what it says: the least amount employers can pay employees.  Strangely enough, sometimes the minimum wage does not actually mean the minimum an employer must pay an employee. While there are federal and state rules in place, exceptions are made to minimum wage standards.

These include young workers and full-time students. There are also special provisions for tipped workers, such as wait staff. However, these workers are still guaranteed to make at least the minimum wage.  Let’s take a deeper look at how minimum wage is calculated and who gets what.

Young People & Student Exceptions

Workers under the age of 20 can be paid a minimum of $4.25 per hour during their first 90 calendar days on the job, provided that they are not displacing older workers. Once they have been on the job for 90 days, their wage must rise to a minimum of $7.25 per hour.

For full-time students, certain other rules apply. Under the Full-Time Student Program, businesses in agriculture or retail, and college and universities can receive a certificate from the Department of Labor which allows the employer to pay not less than 85% of the minimum wage. Employers must certify that the student will not work more than 8 hours in a day, 20 hours in a week while school is in session, or 40 hours per week when school is not in session.

There are also special provisions for student learners. These students are over age 16 and enrolled in vocational (shop) courses. An employer who hires the student can receive a certificate from the Department of Labor to pay not less than 75% of the minimum wage, for as long as the student is in the educational program.

Tipped Worker Exception

Workers who receive tips can be paid as little as $2.13 per hour. However, employers must make up the difference between their total compensation—including tips—and how much they would make if paid the full minimum wage. For example, let’s say a waiter works 8 hours and makes $20 in tips. At the full minimum wage, they would be paid $58 ($7.25 x eight hours) for the shift. However, the total of tips and wages equals only $37.04. The employer would have to make up the difference of $10.96. Some states have minimum wage laws specifically for tipped workers. In these cases, the worker is entitled to whichever provisions provide the greater benefit.

Current law does not mandate that the federal minimum wage rise with inflation. In order for the minimum wage to go up, Congress must pass a law raising the rate, and the President must sign the same bill into law. In other words, there’s no magic formula for the minimum wage. Congress sets it at the time legislation is written and passed. (Although, some states have begun tying their minimum wages to the Consumer Price Index, so that the wage rises automatically with inflation.) For this reason, the minimum wage tends to behave somewhat sporadically compared to inflation. The rate will decline in value compared to inflation, and then jump up when Congress raises the minimum wage.

For example, the minimum wage was a static $3.35 per hour from 1981 to 1990. Of course, inflation didn’t stop during that time, so the real value of the minimum wage jobs declined slowly and steadily over that period. The same is true of the period from 1997 to 2007 when the wage was frozen at $5.15. One thing is for certain: the minimum wage is not a living wage. At its highest real dollar value, the minimum wage only provided 90% of the income necessary to live at the poverty line.

It’s important to note that wherever a state also has a minimum wage law, the worker is entitled to the higher of the two. So, if the minimum wage in Washington is $8.67, workers in Washington are entitled to at least this much, even though the federal minimum wage is only $7.25.

That’s the low down on the minimum wage. Remember, there are three basics to the rules:

  1. A worker must be paid the higher of state and federal minimum wages
  2. Employers must make sure that tipped workers pull in at least enough to equal the minimum wage
  3. Some exceptions are made for students and vocational learners

Topics: Personal Finance

2 Responses to “Everything You Want to Know About Minimum Wage”

  1. Also note that the exceptions don’t apply to all state laws. 7 states don’t have the tipped worker exception. AK, CA, MN, MT, NV, OR, WA So wait staff in those states get the full state minimum wage regardless of tip levels.

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