The Regulation of Minimum Wages in the United States

What Are Minimum Wage Laws? Who Is Covered by Minimum Wage Laws? How Are Minimum Wage Laws Enforced?

To keep pace with inflation, workers need a commensurate increase in compensation. Unfortunately, wages are often one of the last places businesses want to spend more money. Furthermore, it can be difficult for workers to negotiate wage increases as business owners typically hold most of the power in the employment relationship. Owners and managers are reluctant to increase wages when they have candidates available who will work for less. That’s why minimum wage laws are so important.

What Is a Minimum Wage Law?

A minimum wage law is a statute (written law enacted by a legislative body) that mandates payment of a minimum hourly rate for nonexempt employees.

The History of Minimum Wage Laws

The world’s first minimum wage law was put in place in New Zealand in 1894, in response to widespread strikes among shipping workers complaining of poor working conditions and inadequate pay. Similar laws soon followed in Australia and Great Britain and became a model for the first state minimum wage law in the United States, enacted in 1912 in Massachusetts. Over the next couple of years, California, Oregon, Washington, and five other states also put minimum wage laws on the books. In 1938, a federal minimum wage of $0.25 per hour was introduced when Congress passed the Fair Labor Standards Act (FLSA).

In the wake of the Great Depression, minimum wage laws were proposed as a way to stabilize the economy. Proponents of the legislation argued that the lowest paid workers generally had minimal skills and minimal bargaining power, and often were subject to exploitation by employers, such that they could not earn enough for subsistence living.

The Sources of Minimum Wage Laws

Minimum wages are governed by local, state, and federal laws. Where there is disparity between those laws, an employer must pay the highest applicable rate.

Under the FLSA, the federal minimum wage now stands at $7.25 for most workers; however, in response to the COVID pandemic, certain federal workers saw their minimum wage increased to $15.00 in 2022. Currently, all but five states (Alabama, Louisiana, Mississippi, South Carolina, and Tennessee) have their own minimum wage laws. Two states (Georgia and Wyoming) have minimum wages set lower than the federal standard (currently $7.25 per hour) and 29 have minimum wages that are the same as the federal standard or higher. Many cities also have their own minimum wage laws. In many California cities, the minimum wage is over $15 per hour.

Who Qualifies for Payment of a Minimum Wage?

Minimum wage laws apply to workers in both the public and private sectors and govern full- and part-time workers. Only nonexempt employees are entitled to receive a minimum wage.

Nonexempt definition. For purposes of minimum wage laws, certain employees are considered “exempt” from minimum wage requirements, including executives, professionals, and administrators. Nonexempt workers are generally those who are paid hourly wages, as opposed to salaries, and who follow orders from others rather than making their own decisions about when and how they perform their work. Nonexempt workers typically hold jobs that involve physical labor or repetitive tasks, such as construction workers, retail associates, servers, and interns.

Employee definition. Under the federal minimum wage law, a person must be an “employee” to be eligible for a minimum wage. A person may not qualify for minimum wages if they are an independent contractor. Determining whether a worker is an employee or an independent contractor involves consideration of a variety of factors. If the following factors apply to a worker, they are more likely to be considered an employee, rather than an independent contractor; however, other factors also apply and the determination often depends on the specific facts surrounding the work:

• The worker has little or no financial investment in the business.
• The worker’s relationship with the employer is considered indefinite and ongoing; in other words, it is not a limited project-based relationship.
• The worker is unskilled or requires training, as opposed to a worker with a specialized skill.
• The employer has the right to control how and where the work is performed.
• The worker performs work only for the employer and not for other parties.

Enforcement of Minimum Wage Laws

The Department of Labor’s Wage and Hour Division (WHD) has regulatory and enforcement authority with respect to payment of minimum wages. To recover your losses if an employer violates minimum wage laws, you must first file a complaint with WHD. WHD may then conduct an investigation. Based on its findings, WHD may compel an employer to pay back wages or file a civil lawsuit for payment of back wages. FLSA also allows for criminal prosecution of employers who willfully violate minimum wage laws.

Summary

Qualified workers in the United States have a right to be paid a minimum hourly wage. The rate paid must be the highest rate available under the applicable state, local, and federal laws. Qualified workers who are not paid a minimum wage may file a complaint with the Wage and Hour Division of the U.S. Department of Labor. Employers who fail to pay required minimum wages may be subject to civil litigation and criminal prosecution.