How Is Minimum Wage Calculated?

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Hourly Minimum Wages

No fixed calculation determines the minimum wage in the United States; it is set instead by legislation at the federal or state level. The first federal minimum wage was set at 25 cents per hour in 1938; as of July 24, 2009, the federal government raised the minimum hourly wage to $7.25. It is not indexed to the federal poverty guidelines, which vary depending upon the number of people in a household.

However, some businesses are not subject to the federal Fair Labor Standards Act under which minimum wages are mandated. A business that earns less than $500,000 per year and does not engage in interstate commerce, does not fall under the bill. Interstate commerce is broadly defined; a business which makes regular phone calls out-of-state is considered to be conducting interstate commerce. All medical institutions, schools, and government agencies are covered under the law regardless of income.

Federal law can be superseded by state and local guidelines which set higher minimums: for example, California and Massachusetts set their minimums at $8 per hour, and the District of Columbia's is $8.25.

Young workers, under the age of 20, have a special minimum wage of $4.25 per hour for the first 90 days of their employment; afterwards, they must be paid the regular federal minimum.

Overtime

Employers are required to pay at least 1-1/2 times their regular hourly wage when an employee exceeds 40 hours worked in a single week. State laws may amend this to require overtime when more than eight hours are required in a single day. An employer is not required to pay overtime for night or weekend work, unless those are the hours which go over the daily or weekly maximum.

Exempt and Nonexempt Employees

Some employees are considered exempt from minimum wage and overtime requirements. That is, they are not covered by its provisions; "nonexempt" means that they are. Some exemptions are set out by occupation or industry in the details of the FLSA; for example, movie theater employees are not required to receive overtime.

In general, exempt employees must meet these rules: they must be paid at least $23,600 per year; they must be on a salary (vs. an hourly) pay basis; and they must have exempt job duties, which are defined as executive, professional, or administrative.

Since anyone getting paid minimum wage fails the exemption test, an employee who is paid minimum wage must receive overtime pay.

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