Minimum Wage – more than meets the eye

Minimum wage is a hot topic in the media these days, but we aren’t going to debate increasing the minimum wage to $15. The amount may be under debate, but the one thing that doesn’t change is the fact that employers have laws to follow regarding minimum wage.

Employer requirements

Obviously, employers are charged with paying the minimum wage. What you might not understand is that in addition to the federal rate, some states may also have minimum wage requirements. The reason this makes a difference is that whichever is greater, the state or federal rate, is what the employer must pay the employees in their workplace.

Misconceptions to overcome

Payday is a complex undertaking for employers, even regarding minimum wage.You may have heard that you can pay different rates for different kinds of work. While that is true, whatever rate is paid for each kind of work must meet the minimum rate requirement. It is a fallacy that one kind of work can earn a lower rate and another kind of work can exceed the minimum and together they average out to the minimum wage requirement.

Another misconception is that if a worker is paid a salary the minimum wage does not apply to them. This is not correct. For instance, an employment agreement cannot be made for $275 per week based on a 40-hour workweek. For a 40-hour workweek, $290 is the minimum wage to be paid at a rate of $7.25 per hour.

Another area employers really need to be concerned with is employees paid through commission. According to Workplace Fairness:

“An employer cannot create a commission standard that is so low that it makes it impossible for you to be paid the minimum wage when your weekly pay is averaged by the number of hours worked. If your pay including commission is below the minimum wage, then your employer is required to make up the difference.”

The same concept is applied to those employees who are paid a piece rate. The per-piece rate must equal the minimum wage requirement. An example from Workplace Fairness:

“However, for an entire week, your production line has mechanical difficulties and staffing shortages that make it impossible for you to complete no more than 6 widgets per hour (for an average wage of $4.50 per hour). Under federal law, your employer must make up the difference and pay you an extra $2.75 per hour, so that you at least make the minimum wage of $7.25.”

Another area where employers may be unsure of wages is servers or other positions in which employees receive tips. An employer of workers who receive tips is required to pay $2.13 in direct wages, as long as the following three conditions are met:

  • if $2.13 plus the tips you receive equals at least the federal minimum wage of $7.25 per hour,
  • you retain all tips and
  • you customarily and regularly receives more than $30 a month in tips.

Source: Workplace Fairness

If the wages plus tips do not equal the federal minimum hourly wage, the employer is required to make up the difference. Here again, some states have their own laws regarding wages paid to employees that receive tips. The employer is required to meet the laws of the law (federal or state) that has the greatest benefit to the employee.

Workers under age 20 or students

Workers under age 20 have a separate set of rules. They can be paid a minimum wage of $4.25 for their first 90 days of consecutive calendar days of employment. There is a caveat – these workers cannot replace or displace other workers. After the 90 days, or if the worker reaches age 20 (whichever occurs first), the minimum wage is increased to $7.25.

In addition, employers in certain industries can obtain a certificate to participate in the Department of Labor Full-Time Student Program. The certificate limits the number of hours an employee can work in jobs as well as changes the minimum wage to not less than 85% of the current minimum wage. All child labor laws apply.

Consequences for not following the minimum wage laws

If an employee believes that their employer is not meeting the minimum wage requirements under the law, they can make a complaint to the Wage-Hour division of the Department of Labor. There will be an investigation and payment of back wages could be required. Employees can also file a private lawsuit for back wages plus “damages” as well as the costs of litigation like court and attorney’s fees.

The bottom line is that consequences are steep for employers who don’t comply with the regulations. And for small businesses, the consequences can be catastrophic. That’s one of the reasons for working with a payroll provider is more than just delegating tasks out to save time. Leadership is knowing when relying on professionals is the best path to follow.

Outsourcing payroll services to experienced payroll providers like The Payroll Department is a good choice that makes employers feel more secure in their compliance with payroll regulations.

Contact Teresa Ray today at 317-852-2568 in Brownsburg, or at 317-800-0191 in Zionsville, to learn more about what a reliable payroll service can do for you.

-Elaine of The Payroll Department Blog Team


Posted in: Operating a Small Business, Payroll, Payroll Processing, Rules, Regulations and Laws

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