What is the minimum wage?

The federal Fair Labor Standards Act establishes minimum wage that must be paid to all nonexempt employees for each hour worked up to and including 40 hours in a calendar workweek. Any time beyond 40 hours must be paid as time-and-one-half overtime.

The federal minimum wage is $5.15 per hour through July 23, 2007. It will increase to $5.85 per hour on July 24, 2007, to $6.55 per hour on July 24, 2008, and to $7.25 per hour on July 24, 2009.

The minimum doesn't just apply to hourly workers. The law doesn't require you to pay an employee on an hourly basis just because the law is stated that way; it merely requires you to pay a covered employee for a workweek an amount that's at least equal to the minimum wage multiplied by the hours worked. The employee may be paid on an hourly, a salary, a monthly, piecework, or any other basis as long as the statutory minimum requirement is satisfied.

State “minimum wages” and "living wages" may also apply. Many states have also established minimum wage rates. Where a state has not set a minimum wage rate, or the state rate is less beneficial, the federal minimum wage rate will prevail. Be sure to check State Laws for the laws that apply in your state(s).

Additionally, many municipalities require employers to pay a "living wage" to their employees. These ordinances usually also apply to government contractors and employers that receive financial or tax assistance from the locality.

Government contracts. FLSA covered employees may perform work under a government contract, which would bring the employee under the scope of additional federal laws that may set a higher minimum wage rate. If so, the employer must pay the employee the higher wage rate during the time the employee is engaged in government work under the contract.

Deductions --cash payment not required. In general, no deductions may be made that would reduce an employee's cash wage below the minimum wage required. However, deductions from wages may be taken for the reasonable cost of meals, lodging, or other facilities provided to employees, even if the deduction would reduce the wages paid below the minimum wage rate.

The minimum wage doesn't have to be paid in cash. For example, you can pay some or all of it in room and board. But there are two exceptions to that rule: (1) you cannot make a profit on the noncash payments and (2) you cannot use the cost of facilities to pay your employees, if the employee's use of the facility is primarily for your benefit.

Counting wage credits toward minimum wage. The federal law allows you to count board, lodging, and other facilities as part of wages for purposes of meeting the minimum wage requirements. A common example is meals provided by a restaurant to its employees. To take advantage of the rule, however, an employer must meet several criteria:

Count only the reasonable or fair value of the facilities (as opposed to the retail value).

The facilities must be furnished for the benefit of the employees, not just your own convenience.

The employees must be aware that the value of the facilities are being deducted from their cash wages. The employees must voluntarily accept the items. For example, in the case of free meals provided by a restaurant, employees must be allowed to opt out of the meal plan.

The facilities must be of a type customarily furnished by the employer or by other employers engaged in similar activities.

Some states also make provisions for wage credits in their minimum wage laws. Be sure to check your state laws to see if wage credits are covered by your state's minimum wage law.