Minimum Wage

Minimum wage is the lowest hourly rate an employer can legally pay most workers. The federal minimum is $7.25 an hour under the Fair Labor Standards Act. Many states and cities set higher minimums, and when they do, employees are entitled to the higher rate.

What Is Minimum Wage?

Minimum wage sets a legal floor under pay so that work cannot be compensated below a baseline. The federal rate applies across the country, but it functions as a floor, not a ceiling. States, counties, and cities are free to require more, and a large share of the U.S. population now lives in places where the local minimum is well above $7.25.

The rule covers most hourly workers and interacts with other pay protections. For example, overtime is calculated from the regular rate an employee actually earns, which must itself meet at least the applicable minimum wage. Minimum wage also influences how employers set entry-level base pay and how they count full-time hours when budgeting labor costs.

How Minimum Wage Works

A few core rules shape how minimum wage is applied:

• Employees receive the highest applicable rate among the federal, state, and local minimums.
• Tipped workers can be paid a lower cash wage, currently $2.13 federally, as long as tips make up the difference to the full minimum. This is called the tip credit.
• Some categories, such as certain student learners and specific trainee roles, have separate sub-minimum provisions.
• A salaried worker’s pay must also clear the minimum when broken down to an hourly figure.

Because the highest rate controls, employers operating in multiple cities or states have to track local rates carefully. A company with locations in several jurisdictions may legally owe different minimums at different sites for the same job.

Federal vs. State and Local Minimums

The federal minimum has held at $7.25 an hour since 2009, and it only changes when Congress passes new legislation. In the absence of federal increases, states and cities have driven most of the movement. Many of them raise their minimums every year, often indexing the increase to inflation so the rate keeps pace with the cost of living.

This creates a patchwork across the country. In one state the effective minimum might be $7.25, while a city a few hundred miles away could require well over $16. For employees, the practical takeaway is simple: the rate that matters is the highest one that applies where they actually work. For employers, it means compliance is a local question, not just a federal one.

Example

Suppose a city sets its minimum wage at $16.50 an hour while the federal minimum stays at $7.25. A barista in that city must be paid at least $16.50, because the higher local rate controls. If the barista works 30 hours in a week, gross pay is 30 × $16.50 = $495 before deductions reduce net pay. The federal $7.25 figure is simply irrelevant here.

Now picture the same coffee chain opening a second location in a state with no local minimum above the federal floor. There, the company could legally start workers at $7.25, even though employees doing the identical job in the first city earn more than double. The difference is driven entirely by local law.

Key Takeaways

• Minimum wage is the lowest legal hourly pay for most workers.
• The federal rate is $7.25 an hour and has not changed since 2009.
• Employees receive the highest of the federal, state, and local minimums.
• Tipped workers can earn a lower cash wage if tips close the gap.
• Many states and cities raise their minimums every year.
• Salaried pay must also meet the minimum when figured hourly.

Frequently Asked Questions

What is the federal minimum wage?

The federal minimum wage is $7.25 an hour, set under the Fair Labor Standards Act. It has stayed at this rate since 2009.

Which minimum wage applies if state and federal differ?

Employees are entitled to the higher of the two. When a state or city sets a minimum above the federal rate, the higher local rate applies.

What is the tipped minimum wage?

Federal law allows a tipped minimum cash wage of $2.13 an hour, as long as tips bring the worker up to at least the full minimum wage. Many states require more.

Does the minimum wage change each year?

The federal rate only changes when Congress acts, and it has held at $7.25 since 2009. Many states and cities raise their minimums annually, often tied to inflation.

Who is exempt from minimum wage?

Certain workers, such as some student learners, tipped employees under the tip-credit rules, and specific small businesses or roles, fall under separate minimum wage provisions.