Small businesses are looking for ways to stretch the company budget these days. In these times where all companies are looking to run lean and mean, some employers may want to investigate whether or not they are required to pay employees the federal minimum wage. Some employers are not covered by this law. However, there are additional state laws regarding minimum wage that may apply. The following is a brief run-down of the general rules.
What is the federal minimum wage?
Under federal law, employers must pay a minimum hourly wage. The current federal minimum wage is set at $7.25 per hour. The main federal law that sets the minimum wage is the Fair Labor Standards Act (FLSA). Although the minimum wage is an hourly wage, the law does not require employees to be paid by the hour. Business owners may choose to pay a salary, commission, wages plus tips, or at a piece rate, as long as the total amount paid divided by the total number of hours worked is equal to at least the minimum wage.
Who is exempt from federal minimum wage?
Generally, a business comes under the regulations of the FLSA if it has $500,000 or more in annual sales, or if the employees work in "interstate commerce." In this context, interstate commerce simply means business conducted between states. Workers who are exempt from receiving the federal minimum wage include: independent contractors; outside salespeople; workers on small farms; switchboard operators employed by phone companies with no more than 750 stations; employees of seasonal amusement or recreational businesses; employees of local newspapers having a circulation of less than 4,000; newspaper deliverers and apprentices, students and learners (as defined by federal law).
What about the state minimum wage laws?
Here is an important caveat to the exemption from the federal minimum wage laws: each state is free to set its own minimum wage, and many do. In addition, some cities and counties have also passed "living wage" laws, which may set an even higher wage rate. Some of these laws apply only to companies that have contracts to do business with the local government; others apply to all employers in the area. An employer must always pay whichever amount is highest; federal, state, or local. For example, in California with few exceptions, all employers must pay minimum wage under the state law, which is currently $8.00 per hour. Some employees who are exempt from this wage include outside salespersons, individuals who are the parent, spouse, or child of the employer, and apprentices.
Be sure to check both federal and state laws before you set the minimum wage standards for your business. Fines or litigation for failure to follow the law are much more expensive than the the decision to pay minimum wage.