Federal Minimum Wage under the Fair Labor Standards Act. The federal minimum wage for covered nonexempt employees is $7.25 per hour effective July 24, 2009. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA). Many states also have minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.
Under federal law, an employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. If the employee’s tips combined with the employer’s direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference. Many states, however, require higher direct wage amounts for tipped employees.
State Minimum Wage. Currently, eleven states, Arizona, Colorado, Florida, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon, Vermont, and Washington, annually adjust the minimum wage based on inflation and the Consumer Price Index (CPI). The CPI, published by the United States Bureau of Labor Statistics, is a measure of the average change in prices over time for a fixed “market basket” of goods and services, such as food, shelter, medical care, transportation fares and other goods and services people purchase for day-to-day living.
Federal Contractors Minimum Wage. On February 12, 2014, President Obama issued Executive Order 13658, establishing a Minimum Wage for Contractors, directing the Secretary of the Department of Labor (DOL) to issue new implementing regulations that would raise the hourly minimum wage paid by federal contractors to workers performing on or in connection with covered Federal contracts to: (i) $10.10 per hour, beginning January 1, 2015; and (ii) beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor (the Secretary) in accordance with the Order.
The amount of the Executive Order minimum wage will be published by the Secretary at least 90 days before such new minimum wage is to take effect and will be:
1. Not less than the amount in effect on the date of such determination;
2. Increased from such amount by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (United States city average, all items, not seasonally adjusted), or its successor publication, as determined by the Bureau of Labor Statistics; and
3. Rounded to the nearest multiple of $0.05.
The DOL announced on September 20, 2016, notifying the public that the new minimum wage will take effect January 1, 2017. The minimum wage rate for employes working on federal contracts will increase from $10.15 per hour to $10.20 per hour. The minimum cash wage for tipped employees working on federal contracts also will increase from $5.85 to $6.80 per hour. The employees covered are those who are employed by contractors, subcontractors or under contract-like instrument for services or concessions that are covered under the Davis-Bacon Act, Service Contract Act and any other Related Acts, including the Fair Labor Standards Act.
Local Jurisdiction Impact. Employers should also be aware that in addition to state minimum wage laws there are several municipalities that annually adjust their minimum wage. Please check any applicable municipality laws for additional information.
Impact on Employers. Employers must comply with minimum wage laws on the applicable effective dates. Employers should review their employee’s hourly rate of pay and prepare to make necessary adjustments to bring employees to the correct minimum wage on the effective dates indicated in each state’s law. Please take careful note of the effective date of each of the minimum wage adjustments as they vary by state.