We try to publish blog posts from time to time intended to help new business owners and first-time employers. This is one such post. It deals with minimum wage. Whether you are just starting a business or you're transitioning from sole proprietor to employer, you need to understand how minimum wage laws affect you.
Our job as a payroll processing provider is to make sure your employees get paid as directed by you. And while we do our best to assist clients with compliance issues, the law ultimately holds you responsible for making sure your employees are paid what they are owed.
The term 'minimum wage' is pretty self-explanatory. It is the minimum amount employees must be paid according to law. What complicates the matter is jurisdiction. In other words, there are federal, state, and local minimum wage laws to consider.
The Federal Minimum Wage
The minimum wage set by the Fair Labor Standards Act (FSLA) of 1938 is the absolute minimum employers can pay their hourly employees. The last time this wage was adjusted was in 2009. Under the FSLA, non-tipped workers must earn a minimum of $7.25 per hour. Non-tipped workers are paid a straight hourly wage and collect no tips.
Tipped workers, like restaurant servers and bartenders, are required to earn a minimum of $2.13 per hour plus tips. Tips and hourly wages must add up to a minimum of $7.25. If they do not, the employer must make up the difference with extra hourly wages.
One of the oddities of the federal minimum wage law is that it allows employers to pay workers under the age of 20 as little as $4.25 for the first 90 days of work. This law was put in place mainly to address minors working summer jobs, though it is not limited to such circumstances.
State and Local Minimum Wage
Minimum wage laws at the state and local level are what make minimum wage tricky. If no state or local laws exist in a particular jurisdiction, employers must follow the federal rules. If state and local laws require a higher minimum wage, they supersede the federal minimum wage.
As an example, the minimum wage in Massachusetts is $11.00. Employers must pay that rather than depending on the federal minimum wage of $7.25. But what if local minimum wage laws demand a higher pay rate than either the state or federal mandate? Those local laws take precedent.
If you were a minimum wage earner in San Francisco, for example, you would be earning $14 per hour. This is how the law works. In essence, employers are required to pay the highest minimum wage mandated by law, whether that be at the federal, state, or local level.
Minimum Wage and Overtime Pay
The last thing to know is how overtime affects minimum wage. In a nutshell, any hours a nonexempt employee works in excess of 40, in a single work week, must be compensated at one-and-a-half times the employee's hourly rate. So if your company were paying workers based on the federal minimum wage, overtime would have to be paid at a rate of $10.88 per hour.
All of this may seem a bit complicated to you as a new employer. Don't worry, this is normal. Payroll is a complicated beast that can take time to get used to. We are here to help. As a nationwide provider of payroll processing and benefits administration, we have helped countless numbers of clients make sense of their payroll through customized solutions. We have a payroll solution for you too.