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Minimum Wage and Overtime Basics

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Overview

Federal and state governments have enacted many laws designed to protect an employee's interest in receiving fair pay for their work.

Minimum Wage Requirements

Federal law requires that most employees receive a wage of at least $7.25 per hour. Some states have set the minimum at a higher level, and in such states that higher minimum applies.

"Youth Minimum Wage"

Federal law (and some state laws) allow employers to pay a lower minimum wage to employees under twenty years of age. 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, but this lower wage may be paid only for the first 90 days of employment, and an employer may not do anything that displaces one worker who is paid more in order to pay another worker the lower wage.

Employees Who Earn Tips

Under federal law, an employee who regularly receives tips as a part of his or her pay also gets a minimum wage of $2.13 per hour. In order to have this exemption apply, the employee must regularly receive more than $30 per month in tips, and be allowed to keep all tips earned. The combined tips-plus-wages must add up to at least the $7.25 per hour minimum. If tips-plus-wages do not equal 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 -- such as administrative, professional, executive, and outside sales employees. In addition, federal and state laws provide for additional exemptions from the minimum wage for employees who are full-time college students, workers on some farms, workers employed in fishing enterprises, and other types of employees.

Overtime

Federal law requires that employees who are not "exempt" receive overtime pay for any time worked beyond forty hours in any one workweek. The rate of overtime pay is one and one-half times the employee's regular rate of pay, and must be paid in wages, not in goods or time off. A "workweek" is defined as one period of 168 hours, or seven consecutive twenty-four hour periods. The workweek may start at any time, or on any day, as long as the starting day and time are applied consistently. Employees who are eligible for overtime pay may not waive their right to receive overtime.

Exemptions from Overtime Requirements

Many questions about overtime concern which employees are exempt from the overtime requirements. U.S. Department of Labor regulations state that all employees who earn less than $455 per week, or $23,660 per year, are automatically entitled to receive overtime pay. Employees who earn more than that amount are exempt from overtime requirements if they are compensated on a salary, and not on an hourly basis, and if their job falls into one of the following categories:

  • Executive, in which an employee's primary duties involve office or non-manual work directly related to the management of the employer's operations, and which require the employee to exercise discretion and independent judgment.
  • Learned professional, in which an employee's primary duties involve the performance of work that requires advanced knowledge in a field of science or learning. Advanced knowledge is a kind usually acquired by a prolonged course of specialized instruction, and is not acquired on the job itself.
  • Creative professional, in which an employee's primary duties involve invention, imagination, originality, or talent in a field of creative or artistic endeavor.

In addition to the categories mentioned above, outside sales employees and computer employees are also exempt from overtime requirements. An outside sales employee is one whose primary duty is making sales, and who usually works away from the employer's premises. A computer employee is one who is employed on either a salary or fee basis at no less than $455 per week, or who is paid an hourly wage of no less than $27.63 per hour. A computer employee has primary duties that involve the application (including consulting), creation, development, or modification of computer systems or programs, or machine operating systems.