Minimum Wage and Overtime Basics

For most employees, a paycheck is a major motivation for working. Compensation is a primary factor when employees choose jobs or decide whether to keep working or retire. Federal and state governments recognize the importance of wages. They have enacted labor laws and employment laws that protect a worker's pay.

The wage and hour divisions of the labor departments of the federal government and state governments enforce employment laws. They go after complaints and violations of worker pay. Most wage and hour laws apply to full-time employees. The Fair Labor Standards Act (FLSA) does not address part-time workers. Independent contractors, as a rule, are not covered, either.

Below you will find information on many frequently asked questions about minimum wage and overtime pay, also called “premium pay."

Minimum Wage Requirements

The Fair Labor Standards Act (FLSA) sets federal minimum wage requirements. Federal law requires that most employees receive an hourly rate of at least $7.25. The federal minimum wage was last raised in 2009. However, other laws matter.

Many states and cities have set a higher minimum wage than the federal standard. If the state has established a state minimum wage, that minimum wage rate applies if it is higher than the federal minimum wage. Similarly, some cities have set a higher minimum hourly wage than that required under the FLSA. The local rule applies if the local government's hourly rate exceeds the federal minimum wage. The idea is that the federal minimum wage is a floor, not a ceiling.

In addition, overtime hours may have a different calculation under state law. Under federal law, overtime pay must be provided when you work over 40 hours in a workweek as a full-time employee. However, in some states and municipalities, if you work more than eight or 10 hours in one day, overtime pay requirements come into play. It does not matter whether you work more than 40 hours a week.

There are some exceptions to minimum wage laws. For example, youths can receive a minimum wage of $4.25 an hour on a short-term basis. Tipped employees can receive just $2.13 an hour.

When in doubt, employers typically assume that minimum wage laws cover a worker.

Youth Minimum Wage

Federal and some state laws allow employers to pay a lower minimum wage to employees under 20 years old. This lower wage rate is sometimes called a "training wage" or "youth minimum wage." Federal law sets this lower minimum at $4.25 per hour.

Employers may pay the lower wage only for the first 90 calendar days of employment and must not displace a higher-paid worker to pay another worker a lower wage.

Federal law forbids child labor. Although state laws may differ, the FLSA mandates that minors be at least 16 years of age to work in most non-farm jobs.

Tipped Employees

Under federal law, an employee who regularly receives tips as a part of their pay gets a minimum wage of $2.13 per hour. To qualify, employees must regularly earn more than $30 per month in tips and retain all tips earned. The combined tips plus wages must add up to at least the $7.25 per hour federal minimum wage. If tips plus wages do not meet that minimum, the employer must make up the difference.

Exemptions from Minimum Wage Requirements

Federal law and many state laws mandate that certain types of employees are exempt from minimum wage requirements. Exempt employees include:

• Administrative workers
• Professional employees
• Executives
• Outside salespeople

Generally, employers pay exempt employees a salary rather than an hourly wage.

Other exemptions from the minimum wage under federal and state laws include:

• Some farm workers
• Workers in fishing enterprises

Employers must pay nonexempt employees at least the state or federal minimum wage, whichever is higher.

Overtime Pay

Federal law requires that employees who are not exempt receive overtime pay for hours of work beyond 40 in any workweek. The overtime pay rate is 1.5 times the employee's regular rate of pay. Employers must pay overtime compensation in wages, not in goods or time off.

A workweek is 168 hours or seven consecutive 24-hour periods. The workweek may start at any time or on any day as long as the starting day and time are consistently applied.

Employees eligible for overtime pay may not waive their right to receive premium pay.

Exemptions from Overtime Pay Requirements

Many inquiries regarding overtime pay focus on identifying which workers are exempt from overtime requirements. According to regulations from the U.S. Department of Labor (DOL), every employee earning below $684 weekly or $35,658 annually automatically qualifies for overtime pay. Those earning above this threshold can be exempt from overtime pay if they receive a salary (not hourly wages) and if their job lines up with one of the following classifications:

• Executive: The main duties are tied to managing the company's operations. The job requires decision-making and autonomous judgment.
• Administrative: Primarily performs office or non-manual tasks related to management or general business operations. Also engages in discretionary decision-making on significant matters.
• Learned professional: The core tasks require specialized, advanced knowledge typically gained through prolonged, specialized education rather than on-the-job training.
• Creative professional: The main responsibilities require invention, originality, or talent in a recognized artistic or creative endeavor field.
• Computer employees: These workers' main responsibilities involve consulting, developing, or modifying computer systems, programs, or machine operating systems.
• Outside sales employees: These workers are predominantly engaged in sales and typically operate outside the employer's business.
• Highly compensated employees: This covers those who perform office or non-manual work, receive a total annual compensation of $107,432 or more (including at least $684 per week on a salary or fee basis), and regularly carry out at least one duty of an exempt executive, administrative, or professional employee.

Farm Workers

The FLSA covers farm workers because they produce goods for interstate commerce. However, agricultural workers are exempt from some of the FLSA's wage and hour laws. For example, they don't get the overtime rate when they do more than 40 hours of work in a workweek. Still, the FLSA sets standards for their working conditions.

Pay Period

The FLSA sets some rules for when employers should pay employees. Employers must pay employees on the regular payday for the pay period in which they worked those hours. Courts have interpreted the FLSA to require prompt payment of wages.

Employees who qualify for FLSA-required overtime pay must be paid at least once a month. Other employees must be paid at least twice a month.

State laws, however, often provide additional requirements.

Record-Keeping Requirements

Proper record-keeping is essential for employers to demonstrate compliance with FLSA regulations. Violating record-keeping rules can result in citations and penalties if violations are found during audits or investigations. Here are some key employer record-keeping requirements under the FLSA:

• Employers must keep records of employees' wages, number of hours worked daily, and total hours worked each workweek.
• For nonexempt employees, records must indicate the regular hourly rate of pay, any overtime hourly rate of pay, and any additions or deductions to wages.
• Employers should also maintain records for determining exempt vs. nonexempt status, such as employees' job descriptions and duties.
• FLSA records must be kept for at least three years. Some states require longer record retention periods, such as five or six years.
• The records need to be available for inspection by the U.S. Department of Labor's Wage and Hour Division, which enforces FLSA rules. If sued for back wages, employers must make records available to employees and their attorneys.
• Records can be maintained on paper or electronically as long as they are accessible, accurate, and unaltered.

Violations

Penalties for violations generally include fines. However, criminal prosecution is possible in instances in which willful violations and repeated violations are found.

Talk to a Lawyer to Better Understand Minimum Wage and Overtime Rights

All employees should be aware of federal and state wage and overtime laws, as well as the rights created under those laws. If you have questions about the wages you receive or are entitled to as an employee, or if you believe your employer may be violating your rights under federal or state wage laws, contact an experienced employment lawyer who can help you determine how best to proceed.