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Minimum Wage

The lowest wage that companies are obliged to pay their employees for work performed over a certain period

What is Minimum Wage?

Minimum wage is the lowest wage that companies are obliged to give their employees for work performed over a certain period.

 

Minimum Wage

 

It is the legal wage that cannot be reduced further by any contract or mutual agreement. The hourly minimum wage rate can be determined by the legislative body, wage board, competent authority, industrial courts, or labor courts. The first minimum wage in the U.S was set in 1938 by the Fair Labor Standards Act during the Great Depression to protect workers.

 

Summary

  • Minimum wage is the lowest pay rate that an employer can offer for the work performed by employees during a period.
  • The minimum wage system was put in place to protect workers from unreasonable compensations.
  • The hourly minimum wage in the U.S is $7.25, and the rate varies from state to state. It also depends on the age and employment status of the worker.

 

Purpose of Minimum Wage

Minimum wage shields workers from unreasonably low compensation. It prevents employers from exploiting their workers. Minimum wage provides enough income, which enables workers to have enough money for food, shelter, and clothing.

Minimum wage can be seen as a form of a policy to reduce inequality and poverty. It promotes the right to equal pay for the labor of equal significance. The minimum wage system should always be used to complement and support other employment and social policies.

 

Minimum Wage and Each State’s Overview

The laws for minimum wage for each state are enlisted by the U.S. Department of Labor. The state-wide minimum wage rate since 1968 is also made available by the Labor Department.

In the United States, the federal minimum wage is $7.25 per hour as of 2020. However, the minimum wage can be different in each state, and it can vary by age or employment status.

There are 21 states that match the federal minimum wage rate. The District of Columbia and the remaining 29 states set minimum wage rates higher than the federal rate, with the highest rate of minimum wage being $14 per hour in the District of Columbia.

The hourly minimum wage rate in Washington, California, and Massachusetts is expected to increase. In certain cities of California, the minimum wage is even higher at $15.69. Workers are paid a minimum wage of $15 per hour in San Francisco, $11.10 per hour in Colorado and New York, and $11 an hour in Maine and Arizona.

Vermont, Oregon, Rhode Island, Hawaii, Connecticut, and Maryland pay between $10 and $11 per hour. South Dakota, New Jersey, Delaware, West Virginia, Missouri, and Ohio pay higher than $8.50 an hour. Workers in Montana, Illinois, Florida, Nevada, and Minnesota receive a minimum hourly wage between $8 and $8.50. The minimum wage in New Mexico is $7.50 per hour.

Although the cost of living in the U.S. is higher, the hourly minimum wage is lower compared to most countries around the world. The minimum hourly wage in the United Kingdom is $10.73. In Ireland, workers receive a minimum wage of $10.97.

Six of the European countries provide a minimum hourly wage higher than $7.50. Australia and Thailand follow an hourly minimum wage rate of $12.24 and $9.10, respectively.

No federal minimum wage rate exists for countries that are trade partners with the U.S. In Canada, each province sets the state minimum wage rate, while in Mexico, the minimum daily wage is set at $5.10 for the highest remunerated zone by a commission.

China and India also do not impose a national minimum wage due to the varying cost of living across both countries.

 

Exempt Categories

Nearly 1.8 million workers earn wages that are lower than the minimum wage. The following are the exemption categories:

  • Full-time students who are working in a university, retail, stores, etc. should be paid at least 85% of the minimum wage. However, the number of hours is limited. Although a full-time student can work up to eight hours a day, he/she cannot work beyond 20 hours while the school is in operation.
  • As per federal law, workers under the age of 20 earn only $4.25 per hour for the first three months of employment. After 90 days, their pay must be converted to a minimum wage rate.
  • Workers with disabilities receive a special minimum wage, which is less than the minimum wage rate if the disability affects the productivity of the worker. Disabilities such as blindness, drug and alcohol addiction, and cerebral palsy can affect the worker’s production capacity.
  • If low skilled workers earn a considerable share of their income from tips, they can be exempted from the federal minimum wage rate. In such a case, employees who receive tips are paid $2.13 per hour if they usually make $30 per month through tips or the total tips along with the hourly wage exceeds or equals the minimum wage. If the hourly wage and the aggregate of the tips do not reach the minimum wage, the employer should pay the worker the difference.

 

A worker from the above categories, if employed with the government, a school, or hospital, or is not exempt, he or she should receive the minimum wage.

 

Related Readings

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

  • Universal Basic Income (UBI)
  • National Average Wage Index (NAWI)
  • Remuneration
  • Employee Turnover Rate

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