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Federal Minimum Wage

Last updated 4th Oct 2022


The term federal minimum wage refers to the lowest hourly rate an employer may pay a covered nonexempt employee. The current federal minimum wage was established in July 2009, and the rate of pay is $7.25 per hour.


While states have the ability to establish a higher rate of pay, the federal minimum wage was first established as part of the Fair Labor Standards Act. This federal law prescribes the minimum hourly wage an employer can pay a covered nonexempt employee.

Effective July 24, 2009, the federal minimum wage for nonexempt employees is $7.25 per hour. However, there are several exceptions to this rate of pay:

  • Tipped Employees: an employer is permitted to pay a tipped employee not less than $2.13 per hour if the employee regularly receives at least $30.00 per month in tips, and the amount of tips they retain plus their hourly rate is equal to, or higher than, the federal minimum wage. If the total of retained tips plus their hourly rate of pay is less than the federal minimum wage, then the employer must pay the employee the difference.
  • Employees 19 Years and Younger: employers are permitted to pay a special minimum wage of $4.25 per hour to employees under the age of 20 during their first 90 consecutive calendar days of employment. After this time, the employer must comply with the full federal minimum wage law.
  • Full-Time Students: under this program, a full-time student working for a retailer, service store, agricultural company, college or university can be paid not less than 85% of the federal minimum wage. These employers must first obtain a certificate from the Department of Labor. Students may work up to 8 hours in a single day, and no more than 20 hours per week when school is in session and no more than 40 hours when school is not in session. When the student graduates, or otherwise leaves school, they must be paid at least the full federal minimum wage.
  • Student Learners: under this program, students that are at least 16 years of age that are also enrolled in vocational education (also known as career and technical education) may be paid not less than 75% of the federal minimum wage for as long as they are enrolled in the vocational education program. These employers must first obtain a certificate from the Department of Labor.

Following the recovery from the Great Recession, legislators introduced the Fair Minimum Wage Act of 2013. If signed into law, the act would have:

  • Raised the federal minimum wage to $10.10 per hour over the course of two and a half years.
  • Adjusted the minimum wage annually, using a cost of living index, so that purchasing power is not reduced over time.
  • Increased the minimum wage paid to workers that receive tips to 70% of the current federal minimum wage.

Note: Many states also have minimum wage laws. When an employer is subject to both federal and state minimum wage laws, they must pay their employees the higher hourly rate of pay.

Related Terms

cost-of-living adjustment, living wage, base salary, wage deflation

Moneyzine Editor

Moneyzine Editor