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US Minimum Wage Basics: Federal, State, and Tipped Rates

Minimum wage sounds like it should be one simple number, but in practice it is a patchwork of federal, state, city, and job-specific rules layered on top of each other.

The federal minimum wage is a floor, not a fixed national rate

The federal minimum wage has been $7.25 per hour since July 24, 2009 β€” the longest stretch without a federal increase since the minimum wage was first established β€” but it only sets a floor that state and local governments are free to raise.

Employers must pay whichever applicable rate is highest

When federal, state, and city minimum wages differ for the same job, the employer generally must pay the highest rate that applies to that specific location, not simply the federal minimum.

A separate, lower cash wage applies to many tipped workers

Federal law allows employers to pay a direct cash wage as low as $2.13 per hour to workers who regularly receive tips, using a "tip credit" to count part of their tips toward the difference up to the full $7.25 minimum β€” though the employer must make up the gap if tips fall short.

Some states do not allow a tip credit at all

A number of states require tipped employees to be paid the full state minimum wage in cash before tips are even factored in, eliminating the federal tip-credit approach entirely within that state.

A lower youth minimum wage exists for some new young workers

Federal law permits employers to pay employees under 20 years old a reduced "youth minimum wage" for their first 90 consecutive calendar days of employment, after which the standard minimum wage applies.

Several other narrow exemptions exist

Certain categories β€” including some student workers under specific certificate programs, some small-scale agricultural work, and a legacy subminimum wage program for some workers with disabilities β€” are subject to different federal minimum wage rules than the general workforce.

The federal rate does not adjust automatically for inflation

Unlike a number of states that index their minimum wage to inflation and raise it automatically each year, the federal minimum wage only changes when Congress passes new legislation, which is why it can stay flat for many years at a time.

Minimum wage and overtime pay are related but distinct rules

The same federal law that sets the minimum wage, the Fair Labor Standards Act, also sets overtime pay requirements β€” but a worker's eligibility for overtime depends on separate criteria around job duties and salary level, not simply on their hourly rate.

Why the federal number lags behind so many local ones

Because raising the federal minimum wage requires an act of Congress, while many states and cities can adjust their own minimums through their own legislatures or automatic inflation indexing, a large and growing number of workers today are actually covered by a state or city minimum well above the federal $7.25 floor.

The patchwork nature of tipped wages

Tip credit rules vary so much by state β€” from the federal minimum cash wage of $2.13 to states requiring the full minimum wage in cash regardless of tips β€” that the same tipped job can have a very different guaranteed base pay depending purely on which state it is located in.

Frequently Asked Questions

What is the current federal minimum wage?

The federal minimum wage has been $7.25 per hour since July 24, 2009, though many states and cities set their own higher minimum wage that employers in those areas must follow instead.

Can a tipped employee really be paid $2.13 an hour?

Under federal law, yes, as a direct cash wage β€” but the employer must ensure the employee's cash wage plus tips reaches at least the full minimum wage, and must make up any shortfall; some states do not allow this tip credit at all and require the full minimum wage in cash.

Does minimum wage go up automatically with inflation?

Not at the federal level β€” the federal minimum wage only changes through new legislation. A number of states, however, do index their own minimum wage to inflation and adjust it automatically each year.

Is everyone entitled to at least minimum wage?

Nearly everyone, but not universally β€” narrow federal exemptions exist for some categories like certain student workers, some agricultural workers, and a small legacy subminimum wage program for some workers with disabilities.