What Is the US Minimum Wage? Its History and Who Must Comply

The U.S. Minimum Wage Is $7.25/Hour: How Do You Compare?

U.S. minimum wage worker
The cashier at the florist is only making minimum wage. Photo: Yin Yang/Getty Images

Definition: The U.S. minimum wage is the lowest hourly payment that companies in America are allowed to give their employees. It's currently at $7.25 per hour. Most states also have a minimum wage law. Employees will receive whichever is higher, the Federal or state minimum wage.

President Obama called for an increase to $10.10 in his 2014 State of the Union Address. He signed an executive order that said all government contractors must comply with that minimum.

Congress probably won't raise the U.S. minimum wage. One reason is that they're concerned it would force many small businesses to lay off workers to keep their overall labor costs in line. In fact, the Congressional Budget Office said there would be such a trade-off. Raising the minimum wage would take 900,000 families out of poverty, but cost 500,000 workers their jobs by the end of 2016. (Source: "Minimum Wage Would Have Mixed Results," New York Times, February 18, 2014.)

The U.S. minimum wage is designed to make sure employers don't unfairly exploit desperate workers. Even though it sets a minimum standard, it should not be confused with a minimum living wage. Although it protects workers from exploitation, it hasn't kept pace with inflation.

In fact, at 40 hours per week for 52 weeks, the minimum wage translates to $15,080 a year. That is more than the Federal poverty level for a single person but is lower than the level for a family of four.

In other words, if someone was trying to support a family by making minimum wage, they would qualify for Federal assistance.

Who Makes Minimum Wage?

According to the Bureau of Labor Statistics, 1.532 million hourly workers earned the minimum wage. The good news is Perhaps surprisingly, not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to.

 The good news is that its only 2.6% of all paid workers. It's also shrinking. In 1979, they made up 7.9% of all workers. 

Those who earn the minimum wage, or less. are young. More than half are between 16 to 24, while half of those are teenagers. Most (77%) are white, and nearly half are white women. That's because 64% are part-time workers. 

More than half work in the hotel and restaurant business. Retail employs 14% of them, while 8% work in education and health services. (Source: "Who Makes Minimum Wage?" Drew DeSilver, Pew Research Center, September 8, 2014.)

Federal Minimum Wage

The federal minimum wage was established by the Fair Labor Standards Act (FLSA), enacted in 1938. Congress amended it through the years. The most recent amendment was the Fair Minimum Wage Act of 2007, which set these scheduled increases.:

  • Before July 24, 2007 -- $5.15 per hour.
  • July 24, 2007 -- $5.85 per hour.
  • July 24, 2008 -- $6.55 per hour.
  • July 24, 2009 -- $7.25 per hour. (Source: U.S. Department of Labor, What Is the Minimum Wage?)

Who Must Comply

The minimum wage law applies to businesses that make at least $500,000 annually. Even smaller companies must comply if they are involved in interstate commerce. The minimum wage must also be paid to all government, hospital and school employees, as well as domestic workers.

The Wage and Hour Division of the U.S. Department of Labor enforces it. For more details, see FLSA Reference Guide.

Minimum Wage by State

Each state can set its own minimum wage. The Federal minimum wage applies if the state's wage is lower. As a result, 21 states' minimum wage equals the Federal level:

  • Two states with lower rates (Georgia and Wyoming).
  • 14 states that set their rate to equal the Federal wage.
  • Five states with no local law (Louisiana, Mississippi, Tennessee, Alabama, and South Carolina).

All the other states (29) and the District of Columbia have higher rates than the Federal level.

The highest wage is in the District of Columbia ($11.50, effective July 1, 2016). It will increase to $15 by July 1, 2020.

New York will raise the minimum wage in New York City to $15 per hour by the end of 2018.

California and Massachusetts both pay $10 an hour. California will increase the minimum wage to $15 per hour by Jan. 1, 2022. That's for employers with 26 or more workers. Smaller companies have until Jan. 1, 2023. After that, the minimum will rise to keep up with inflation. (Source: "2016 Minimum Wage by State," National Conference of State Legislatures, July 19, 2016.)

Eleven states use a cost of living adjustment to account for inflation. That means they increase them minimum wage along with the Consumer Price Index. To find the specific laws for each state, see U.S. Department of Labor, Minimum Wage Laws by State. Track the increases in the minimum wage for each state since 1968 at State Minimum Wage History.

Minimum Wage Exceptions

Nearly 1.8 million workers earn less than the minimum because they are exempt. These are the exemption categories and wages.

  • Full-time students: 85% of minimum wage, in retail or service stores, agriculture, or universities that obtain a certificate from the Department of Labor (DOL). Student hours are also limited.
  • Student learners who are 16 or older: 75% of the minimum wage for vocational education employers, who must also get a certificate from the DOL.
  • Those under 20 in their first 90 days of employment: $4.25/hour.
  • Workers with disabilities: Special minimum wage if the disability lowers the workers' productivity. For more, see Fact Sheet 39.
  • Tipped employees: $2.13/hour if tips make up the rest to total the minimum wage. If not, then the employer must make up the difference.

Also, check the state minimum wage laws for these worker categories, although the Federal law will take precedence if the amount is higher. (Source: U.S. Department of Labor, Q&A About the Minimum Wage)

History

The minimum wage began in the U.S. in 1938 with the passage of the Fair Labor Standards Act (FLSA). President Franklin D. Roosevelt passed it as part of the New Deal to protect workers during The Great Depression, who were being paid pennies a day. He set the minimum wage at $.25/hour, which is equivalent to $4.07/hour today. FLSA also banned child labor and limited the work week to 44 hours. The law was necessary because fierce competition during the Depression forced companies to slash pay and extend hours just to stay in business. As a result, 25% of American children were working 60 hours a week or more, according to a Labor Department survey at the time. (Source: "FLSA 1938," U.S. Department of Labor, )

The minimum wage was raised by Congress three more times, reaching $1/hour in 1956. But FLSA applied primarily to workers in interstate commerce. In 1961, the Act was amended to include workers in retail and service companies, and to local transportation, construction and gas station employees. Five years later, FLSA was extended to state and local government employees, and to more workers in service industries such as laundries, hotels, and farms. (Source: "History of FLSA," U.S. Department of Labor, )