Minimum Wage

How the federal minimum wage works

The Fair Labor Standards Act (FLSA) of 1938 sets the federal floor. Congress last raised it to $7.25 an hour, effective July 24, 2009. It applies to non-exempt employees of covered enterprises (generally those with at least $500,000 in annual sales) and to workers individually engaged in interstate commerce, which in practice covers most private-sector employees.

The FLSA allows a few lower rates:

• Tipped employees: employers may pay a cash wage of $2.13 an hour and take a tip credit of up to $5.12, as long as tips bring the employee to at least $7.25. The employer must notify employees about the tip credit in advance.
• Youth: workers under 20 may be paid $4.25 an hour for their first 90 consecutive calendar days.
• Certain student learners and workers with disabilities under special certificates, a program that has been narrowing.

Exempt employees are paid on a salary basis and aren't owed minimum wage hour by hour, but they must meet duties tests and a minimum salary level.

State and local minimum wages

The federal rate is now the operative rate in a minority of states. About 30 states plus Washington, D.C. have higher minimums, and many adjust them each year for inflation. A growing number of cities and counties set their own, often well above the state rate. Some examples: California's statewide minimum rose from $16.50 in 2025 to $16.90 in 2026, with a separate $20 rate for many fast-food workers since April 2024, and cities including Seattle and Denver have set rates above $18.

When several rates apply, the employee gets the highest one. A multi-state employer with 80 locations may be dealing with dozens of different rates, many of which change on January 1 and some on July 1. Several states, including California, Washington, Oregon, Minnesota and Nevada, don't allow a tip credit at all, so tipped workers there get the full state minimum before tips.

Rates change often, so verify current figures with each state's labor department before setting pay.

Where employers get minimum wage wrong

Most violations aren't about the posted hourly rate. They come from hours that weren't paid or deductions that pushed effective pay below the minimum:

• Off-the-clock work: pre-shift security screening, booting up a computer before clocking in at a contact center, or finishing tasks after clock-out.
• Unpaid training: required new-hire training is generally work time under the FLSA. A two-week unpaid class for agents is a classic violation.
• Deductions: charging for uniforms, tools or cash register shortages can't reduce pay below minimum wage in that workweek.
• Tip credit errors: managers in tip pools, tipped employees spending substantial time on non-tipped side work, or missing tip credit notices.
• Rounding and auto-deducted breaks: automatic 30-minute meal deductions when employees actually worked through lunch.

Federal law measures compliance by the workweek. Some states, such as California, look at each hour, which makes averaging across a week unsafe.

What it means for hourly hiring

For high-volume employers, the legal minimum is rarely the real market wage. Warehouse, retail and contact-center roles in most metro areas pay well above it, and posting at the minimum usually lengthens time to fill and raises early turnover. Many teams benchmark against local competitors and a living wage estimate as well as the legal floor.

Minimum wage increases also ripple upward. When the floor rises from $16 to $17, a team lead earning $17.50 has almost no premium left, and wage compression becomes a retention problem. Budget for adjusting the rates just above the minimum, not only the lowest band. Overtime calculations move too, since overtime is time and a half of the regular rate.

This is general information. Minimum wage rules vary widely by state and city, so confirm the rates and rules that apply to each work location.