Minimum wage

Definition

Minimum wage is the lowest amount that employers are legally required to pay their employees for their work. It serves as a safety net to ensure that workers earn a basic income that can cover essential living expenses, and it is tied closely to labor standards set by federal and state laws. Understanding minimum wage is essential because it influences the overall economy, employee rights, and the distinction between exempt and non-exempt employees under labor regulations.

5 Must Know Facts For Your Next Test

1. The federal minimum wage was established in 1938 and has been raised multiple times since then to keep pace with inflation and cost of living.
2. Many states and cities have enacted their own minimum wage laws that set rates higher than the federal minimum, leading to variations across the country.
3. Certain categories of workers, such as tipped employees, may have a different minimum wage that can be lower than the standard rate due to tips supplementing their income.
4. Employers must comply with both federal and state minimum wage laws, meaning they must follow the law that provides the highest wages.
5. Understanding whether an employee is classified as exempt or non-exempt is critical in determining their eligibility for minimum wage and overtime pay protections.

Review Questions

• How does the Fair Labor Standards Act impact minimum wage laws across different states?
  • The Fair Labor Standards Act sets a baseline for minimum wage across the United States but allows states to establish higher rates if they choose. This means that while the federal government mandates a specific minimum wage, states can enact laws that provide greater protections for workers. As a result, some states have minimum wages that exceed the federal level to better reflect their local economies and living costs, highlighting the importance of understanding both federal and state regulations.
• Compare and contrast exempt and non-exempt employees concerning minimum wage protections.
  • Exempt employees are not entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act because they fall into specific categories based on job duties and salary levels. In contrast, non-exempt employees must be paid at least the minimum wage for all hours worked, along with overtime for any hours exceeding 40 in a workweek. This distinction is crucial as it determines which workers are protected under minimum wage laws and helps ensure fair compensation practices.
• Evaluate the effects of increasing the minimum wage on employment rates and business operations.
  • Increasing the minimum wage can lead to various outcomes in employment rates and business operations. Advocates argue that raising the minimum wage boosts workers' purchasing power, reducing poverty levels and stimulating economic growth. However, critics suggest that higher wages could lead businesses to cut jobs or reduce hiring to offset increased labor costs. Ultimately, this complex relationship requires careful consideration of economic data and social impacts to balance worker needs with business sustainability.

Related terms

Fair Labor Standards Act (FLSA): A federal law that establishes minimum wage, overtime pay eligibility, recordkeeping, and youth employment in the private sector and in federal, state, and local governments.

Overtime: Additional pay earned by employees who work beyond the standard 40 hours in a week, typically calculated at a rate of 1.5 times the regular hourly rate.

Exempt Employees: Workers who are exempt from minimum wage and overtime pay requirements under the FLSA due to their job duties, salary level, or professional status.