Square : Understanding the Federal Minimum Wage

Should the minimum wage be raised? This hot-button issue can affect the way you run your business. Here's what you should know about the federal minimum wage so you can be ready for what comes next.

What is the federal minimum wage?

Minimum wage is a rule, set by the Fair Labor Standards Act (FLSA), that tells employers the lowest hourly wage they can pay their employees. The federal minimum wage is currently $7.25. The federal minimum wage has not changed since 2009.

Can states have a higher minimum wage than the federal standard?
Yes, individual states can implement their own minimum wage law. When a state's minimum wage doesn't match the federal standard, hourly workers must be paid the higher of the two amounts.

Cities or counties can also impose a minimum wage. In that case, an employer must pay the highest applicable minimum wage.

What is the minimum wage in each state?

This map shows the 2016 minimum wage in each state. For states without a minimum wage, the federal minimum wage applies. For more information on the minimum wage plans for each state, see below.

Who is covered by the federal minimum wage?

Generally, nonexempt employees. Employees who are paid on an hourly basis are usually considered nonexempt, regardless of their hourly pay rate. Employees generally classified as nonexempt include, but are not limited to, clerical, blue-collar, maintenance, construction, and semiskilled workers, as well as technicians and laborers.

What about workers who make tips?

Tipped employees may be paid less than the standard hourly minimum in some states, as long as tips bring their pay up to at least the applicable minimum wage.

Take a look at this Department of Labor Fact Sheet to see who qualifies as a tipped employee, but be sure to check local requirements as well.

Are there plans to increase the minimum wage?

While the idea of raising the minimum wage is a popular one among organized labor and anti-poverty groups - they are pushing for $15 an hour as the new standard - a recent Pew Research Center survey found partisan and racial differences in support.

What are some of the arguments supporting the federal minimum wage increase?

• Minimum wage hasn't kept up with inflation and many minimum wage workers (especially those with families of three or more people) are impoverished.
• People will have more money to spend and amplify the growth of the economy.
• Government expenses for social programs aimed at the poor may be reduced, resulting in lower taxes for other Americans.
• More revenue for the government would be generated from payroll taxes for Social Security.

What are some of the arguments against the federal minimum wage increase?

• Employers will be burdened, especially small companies, resulting in slower growth and decreased employment levels.
• It provides an incentive for employers to invest in automated processes, technology, and machinery to increase productivity - this means less human resources.
• Prices of products and services may be increased to offset higher labor costs.
• Companies would have an increased incentive to outsource labor to countries where minimum wage rates are lower.

But minimum wages are increasing in states, right?

There are some states that have announced plans to reach a $15 minimum wage in the coming years, but there are many that haven't. Check back to see what the minimum wage plans are in your state.

Whether you're for or against a minimum wage increase, it's important that you stay up to date on the topic for the health of your business. Talk to your lawyer if you have any questions.