The minimum wage in the United States and what employers must know
Reviewed by Mellow Editorial Team, HR & payroll content team
The federal minimum wage is $7.25 per hour, set by the Fair Labor Standards Act (FLSA). However, most employers will need to pay more than that — many states, counties and cities have set higher minimums that override the federal floor.
Federal minimum wage: the baseline
The FLSA sets $7.25 per hour as the federal minimum for most non-exempt employees. This rate has not changed since 2009. Where no state or local law sets a higher rate, the federal minimum applies by default.
Certain workers can legally be paid less under federal rules. Tipped employees can receive a cash wage as low as $2.13 per hour, provided tips bring their total hourly earnings to at least $7.25. If tips fall short, the employer must make up the difference. Full-time students, youth workers (under 20, for the first 90 calendar days of employment) and workers with disabilities certified under Section 14(c) of the FLSA may also be paid sub-minimum rates under specific conditions. These carve-outs are narrow and come with strict compliance requirements.
State and local minimums almost always govern
Because employment law in the US is layered, the rule is simple: whichever minimum wage is highest — federal, state or local — is the one the employer must pay.
A number of states have set minimums well above $7.25, and several large cities and counties have gone further still. Some jurisdictions also index their minimum wage to inflation, meaning the rate adjusts automatically each year without a new law being passed. This makes it essential to check the current rate for every location where you have employees, not just once at onboarding but on a rolling basis.
States with no minimum wage law of their own, or a state minimum below $7.25, default to the federal rate. Texas and Georgia, for example, have state minimums below the federal floor, so $7.25 applies there. Florida, meanwhile, passed a constitutional amendment that has been phasing its minimum wage upward. Washington State and California have significantly higher minimums and both have cities with rates higher still.
Exempt vs. non-exempt: who minimum wage covers
Minimum wage rules apply to non-exempt employees. Whether a worker is exempt depends on their job duties and, separately, their salary level — not just their job title. Common exemptions under the FLSA include executive, administrative and professional employees who are paid on a salary basis above the applicable threshold.
Misclassifying an employee as exempt, or treating an employee as an independent contractor when they are in fact an employee, is one of the most common and costly compliance errors. Workers classified as contractors receive a 1099-NEC rather than a W-2, and minimum wage rules do not apply to genuine independent contractors. But if the working relationship looks like employment — set hours, employer-controlled work, integration into the business — a regulator or court may recharacterize that worker as an employee, exposing the business to back pay, penalties and interest.
Calculating pay correctly
Minimum wage applies to the regular rate of pay for all hours worked in a workweek. Hours worked includes time the employer requires or allows — pre-shift setup, mandatory training, waiting time, and in many cases on-call time. It does not automatically include meal breaks of 30 minutes or more where the employee is completely relieved of duties, though shorter breaks generally must be counted.
For tipped workers, tracking tips carefully and reconciling them against the minimum wage floor is a payroll requirement, not optional bookkeeping. Tip credits are disallowed or restricted in several states, including California, which requires employers to pay the full state minimum wage regardless of tips received.
Overtime is related but separate: non-exempt employees must receive at least 1.5 times their regular rate for hours over 40 in a workweek. Some states require daily overtime calculations as well.
Enforcement, recordkeeping and practical risk
The Department of Labor's Wage and Hour Division enforces the FLSA. State labor agencies enforce state wage laws. Either can audit an employer, investigate a complaint or initiate litigation. Employers found to have underpaid workers face back wages, liquidated damages (often equal to the back wages owed), civil penalties and, in willful cases, criminal liability.
Recordkeeping is part of compliance. The FLSA requires employers to retain payroll records — including hours worked and wages paid — for at least three years. Accurate timekeeping for hourly and non-exempt workers is not just good practice; it is a legal requirement and your primary defense in a dispute.
If you operate across multiple states or have remote employees working from different locations, the compliance picture multiplies. Each employee's minimum wage obligation is generally determined by where the work is performed, not where the company is headquartered. Understanding how payroll works across different jurisdictions becomes material the moment you hire outside your home state.
This article is general information, not legal advice. Consult a qualified employment attorney or HR professional for guidance specific to your situation.
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