What Is Minimum Wage? Federal Rate, State Rules & Employer Basics

Minimum wage is the lowest hourly pay rate covered employers must pay eligible employees for each hour worked. In 2026, the federal floor under the Fair Labor Standards Act (FLSA) remains $7.25 per hour — while most US worksites also follow state or local minimum wage laws that set a higher number.

This glossary explains minimum wage for employers running shift teams in hospitality, retail, and healthcare. It is not a global history of wage policy, a living-wage advocacy piece, or a job-seeker tool to hunt the highest-paying state. When you need interactive rate math, use our hourly wage calculator — this page stays definitional and compliance-oriented.

If you operate in the UK as well, skip to the UK National Living Wage section below — US federal rules do not apply there.

Important: This glossary is general US wage-and-hour orientation, not legal advice. Minimum wage rates, tip credits, and local ordinances change. Confirm current rules with qualified counsel and official DOL and state labor agency sources before you change payroll.

What is minimum wage?

For payroll and HR teams, minimum wage is the legal wage floor for straight-time hours: the smallest hourly amount you may pay a covered worker for time worked, before overtime premiums and before voluntary benefits. Congress set the federal minimum in the FLSA; states and cities may require more.

Minimum wage applies to covered employees, not genuine independent contractors. It is separate from overtime pay (premium pay after hour thresholds) and from gross pay on a paycheck, which can include overtime, bonuses, and shift premiums above the floor.

Employers subject to more than one rule must usually pay the highest applicable minimum for each hour — federal, state, county, or city. A handbook that only mentions the federal rate is risky when your store sits in a higher-minimum jurisdiction.

Germany and other EU markets use different statutory floors (for example Germany’s statutory minimum wage under MiLoG). US readers should not import foreign thresholds into US payroll without a separate legal review.

Who must receive minimum wage?

Minimum wage protections apply to covered employees of covered employers — not volunteers, not bona fide independent contractors, and not every intern or trainee arrangement. Coverage follows the same FLSA enterprise and individual tests in our FLSA glossary: many retailers and restaurants cross the dollar-volume threshold; smaller firms may still cover staff engaged in interstate commerce.

Trainees, apprentices, and student workers may have special rules or state overlays. If someone is on payroll as W-2 hourly staff on your shift floor, assume minimum wage applies until counsel confirms an exemption.

Is minimum wage before or after taxes?

Minimum wage is a gross, pre-tax hourly floor. Withholding for federal income tax, Social Security, Medicare, and state programs comes out of paychecks after you pay at least the legal minimum for hours worked. An employee who clears $15/hour on the clock can still take home less than that in net pay — that is normal withholding, not a minimum wage violation. Confusion often shows up on the pay stub when someone compares “hours × rate” to the net deposit; HR should separate legal wage compliance from tax and benefit deductions when answering questions.

Federal minimum wage in 2026

The federal minimum wage in 2026 is $7.25 per hour for covered non-tipped employees, according to the federal minimum wage rules under the FLSA. That rate has not increased since July 24, 2009. Debate about raising the federal floor does not change what you owe until Congress and implementing regulations actually change the law.

Because many states and cities set higher floors, the federal number is often a baseline, not the rate you pay in practice. Multi-site brands should maintain a rate table by location rather than one national default in payroll.

Federal contractors and some grant-funded programs can face higher contractual wage floors (for example Executive Order minimums for covered contracts). Those obligations sit beside — not instead of — FLSA minimum wage for the same hours when both apply. If your finance team only tracks FLSA, loop in whoever signs federal agreements before bid season.

Annual compliance reviews should re-open the DOL minimum wage page and your top five states by headcount. An unchanged federal rate does not mean your California or Colorado stores stayed flat — local labor boards publish mid-year bulletins too.

Covered employers must keep wage records that support each pay period. In disputes, investigators usually start with time records — not handbook language alone. Required minimum wage posters and state notices are covered in the next section on posters and rate changes.

Which hours count toward minimum wage?

You owe the minimum for hours worked, not merely hours scheduled. Training that is mandatory and job-related, opening and closing duties, and certain on-call pay situations can be compensable even when managers think of them as “off the clock.” Automatic meal-break deductions only work when breaks are truly unpaid and uninterrupted. Weak punches make it hard to prove you met the floor — see working conditions and time and attendance for habits that keep payroll defensible.

State and local minimum wage

State minimum wage laws often exceed the federal rate. When they do, employers must pay the higher amount for hours worked in that jurisdiction. Some cities add another layer — for example higher rates in large metros than the statewide minimum.

The DOL publishes a state minimum wage map; the National Conference of State Legislatures maintains a state minimum wage summary. Use those sources for exhaustive lists — this glossary only highlights examples employers ask about most often.

Remote and traveling workers: Pay rules follow where work is performed, not where payroll is processed. A regional manager who covers stores in two states may need two minimum rates in the same pay period.

States cannot set a minimum below the federal floor for workers covered by the FLSA. They can set a higher floor, and many do. Annual January updates are common — schedule a compliance calendar review each Q4.

Local minimum wage ordinances

City and county laws can exceed the state rate — common in large metros with higher living costs. Chicago, Seattle, Los Angeles, and many Bay Area cities have historically run above their statewide floors; hospitality and retail chains with “one state rate” in the POS often underpay downtown sites until a location table is enforced. Maintain a location code in your HRIS or time system so each punch inherits the correct minimum, and re-check city council agendas in Q4 when ballot measures are common.

Industry-specific minimums

Some states set higher floors for particular sectors (fast food, hotels, healthcare contractors). California’s fast-food minimum is an example of a rate that diverges from the general statewide floor. When your brand spans several business types (for example quick-service and full-service dining), confirm which wage order applies per site.

Part-time hours and the wage floor

Part-time status does not create a lower legal minimum. A server scheduled 15 hours and a line cook at 40 hours in the same state generally share the same hourly floor for each hour worked — unless a valid tipped, youth, or other narrow category applies. How you define part-time for benefits or scheduling is separate from wage law; see our part-time hours glossary for ACA thresholds and scheduling bands, and still pay the applicable minimum for every compensable hour on the punch.

Tipped minimum wage and tip credit

For traditional tipped roles (such as servers and bartenders in qualifying establishments), federal law allows a tip credit toward the minimum wage if the employer pays a direct cash wage and tips bring total earnings to at least the full minimum each workweek. Under current federal rules, that direct cash portion is often $2.13 per hour when the full minimum is $7.25 — the credit fills the gap only when reported tips are sufficient. Employers must notify workers of the tip credit, follow poster rules, and keep tip records.

The tipped minimum wage (direct cash portion) is lower than the standard minimum only when the tip credit is valid. If tips fall short, the employer must make up the difference — you cannot average short tips across unrelated weeks to hide a deficit.

Some states require full minimum wage paid in cash with no tip credit (common on the West Coast). When state law is stricter, follow the state rule. Deep tip-pool enforcement examples live in our FLSA glossary — this section stays at wage-floor basics.

States that limit or ban the tip credit

Employers with sites in California, Oregon, Washington, and several other states cannot rely on the federal $2.13 cash wage model at all — tipped staff must receive at least the full state or local minimum in direct wages, with separate rules for how tips are handled. Multi-state brands sometimes copy a tipped rate card from a Texas store onto a California roster and discover the error only at audit. Maintain a tip-credit eligibility flag per location in payroll, not per job title globally.

Tipped minimum wage example (federal framing)

Suppose the full minimum is $7.25 and the employer uses the federal tip credit with a $2.13 direct cash wage. If tips in a workweek average enough that total hourly earnings meet $7.25, the credit is valid. If a slow week leaves effective pay at $6.80/hour, the employer owes make-up pay for that week — not next month’s busy season.

Youth, training, and subminimum wages

The FLSA allows a limited youth minimum wage of $4.25 per hour for the first 90 consecutive calendar days of employment for workers under age 20, when other legal conditions are met. It is not a general discount for all teenage staff — eligibility is narrow.

Section 14(c) certificates can permit subminimum wages for certain workers with disabilities in qualified programs. Those programs are heavily regulated and politically sensitive; most retail and restaurant employers never use them. If you are unsure whether a training or internship arrangement qualifies for a subminimum rate, involve counsel before payroll goes live.

Child labor limits (hours and hazardous work for minors) interact with wage rules but are not the same topic. See DOL YouthRules for hour restrictions; pay minors at least the applicable minimum for each hour worked.

Federal youth training wage — employer guardrails

The $4.25 training wage applies only to workers under 20 for the first 90 consecutive calendar days of employment with a given employer, and you cannot use it to displace another worker. It is not a standing “teen rate” for every high-school hire on your shift floor. When the 90-day window ends — or the worker turns 20 — the applicable standard minimum applies to every hour. If you run summer hiring spikes, track eligibility dates in HRIS the same way you track I-9 renewals.

Minimum wage vs living wage

Minimum wage is a legal floor set by statute. A living wage is usually a policy or advocacy estimate of what a household needs in a given area to cover basic expenses — or a voluntary employer pledge. Campaigns, contractor ordinances, and certified “living wage employer” programs are related ideas but not interchangeable with the federal minimum.

Job postings that advertise “$18/hour” may already exceed the legal minimum in a low-floor state — but pay must still clear the rate for the address where the shift happens. Recruiters should not copy national marketing copy onto local listings without a location-specific wage line.

Some cities require contractors or large employers to pay a living wage above the standard minimum. Those ordinances are location-specific. Your HR team should label handbook commitments clearly: “we pay above minimum wage” is not the same as “we certified as a living-wage employer” unless you completed that program.

Minimum wage, overtime, and shift premiums

Minimum wage is the floor for straight-time hours. Overtime pay is a separate premium once hour thresholds are met. A non-exempt employee can earn above minimum wage on regular hours and still be owed time and a half on overtime hours under the FLSA overtime rules.

Shift differentials and holiday pay premiums are not substitutes for minimum wage — they stack on top of the base rate when they are part of the compensation plan. Nondiscretionary premiums can also increase the regular rate used in overtime math, which is why payroll should calculate minimum compliance and OT in the same workweek view.

Think of the sequence in three layers: (1) meet minimum wage for each hour, (2) add contractually promised premiums where they apply, (3) calculate overtime on the proper regular rate when hours cross statutory thresholds. Skipping step one because someone “already earned premiums” is a common spreadsheet mistake on busy holiday weekends.

Use our hourly wage calculator to sanity-check annual or monthly salary against an hourly minimum, and the overtime calculator once hours exceed 40 in a week.

Posters, notices, and rate changes

Covered US employers must display the federal minimum wage poster (and state posters where required). The DOL provides the current federal workplace posters for download; many states publish separate minimum-wage notices with their own dollar amounts. Tipped employees need additional notices when a tip credit applies — including how tips are counted and when make-up pay is owed.

Posters are not a substitute for training managers on off-the-clock work and break deductions. Keep a simple compliance packet per location: federal poster, state poster, city supplement (if any), tipped notice (if used), and the date each version was posted. When rates change mid-year, replace the notice the same week payroll rates update, not the next quarterly handbook refresh.

When a state or city increases its minimum on January 1 or mid-year, update:

• Payroll rate tables and POS job codes
• Offer letters and hiring ranges for new hourly roles
• Union or handbook references that cite dollar amounts
• Time-system pay rules so retroactive corrections are rare

Document the effective date you applied each change. Investigators compare pay registers to the legal rate on the dates worked, not the date you discovered the new law.

UK National Living Wage (contrast)

UK employers follow the National Living Wage (NLW) and National Minimum Wage (NMW) bands set by the UK government, not the US federal $7.25 floor. Rates change each 1 April and depend on worker age and apprentice status. From April 2026, the NLW for workers aged 21 and over is £12.71 per hour — confirm all age bands on GOV.UK minimum wage rates. Overview: GOV.UK — National Minimum Wage.

UK enforcement sits with HMRC and worker complaints — not the US DOL framework. If you run US and UK sites, keep payroll playbooks separate. US PTO framing does not map cleanly to UK statutory leave — and US minimum wage figures should not appear in UK offer letters.

Minimum wage for shift teams

Restaurants, stores, and care facilities feel minimum wage risk every payroll cycle — not only on January 1 when rates change. Common failure patterns include:

Non-exempt employees must receive at least the applicable minimum wage for each hour worked. Exempt employees are generally paid on a salary basis under different tests — but salaried non-exempt staff still need minimum wage for each hour if their effective rate falls below the floor.

Practical employer checklist:

1. Map minimum rates by worksite (federal, state, county, city).
2. Confirm tipped roles use valid tip credit notices and make-up pay rules.
3. Reconcile time records before payroll — missing punches hide sub-minimum effective rates.
4. After rate changes, update POS labor codes, scheduling templates, and posted notices.
5. Document which locations use which rate — auditors ask for location, not just company name.
6. Train managers that asking staff to work unpaid “after clock-out” can drag effective pay below the floor.
7. Separate minimum wage compliance from FLSA overtime reviews — both use the same hour records.

Salaried non-exempt and minimum wage

A salaried employee can still be non-exempt. Divide weekly salary by actual hours worked in a light week; if the effective hourly rate falls below the applicable minimum, you may owe additional wages. This pattern appears when managers compress hours into salary but schedules still fluctuate on the floor.

When pay falls below the legal floor

If an investigation or internal audit shows effective pay under the applicable minimum for a workweek, employers typically owe back wages for the shortfall — and may face additional penalties, interest, or litigation depending on federal or state enforcement paths. Retaliation against workers who raise wage questions creates separate liability. Treat the first underpayment as a process signal: missing punches, wrong location codes, or tip-credit notices that never went out. Document corrective pay and fix the root cause in timekeeping or rate tables rather than repeating the same gap on the next cycle.

Audits and employee questions

When an employee asks whether their check meets minimum wage, reconstruct the workweek: hours from time data, cash wages plus tips (if tipped), and the legal rate for that location. Fixing one paycheck is cheaper than defending a pattern across months of missing punches.

Ordio helps shift-heavy teams align employee scheduling with time tracking so managers spot missing punches and location mismatches before payroll closes — not a substitute for legal advice or a full payroll engine. Once straight-time pay meets the floor, use our FLSA overtime glossary and overtime calculator for premium-hour examples.

If you want schedules and hours in one place before payday, book a no-obligation demo.

Summary

Minimum wage is the legal hourly floor for covered employees in the United States. In 2026, the federal minimum wage stays at $7.25 per hour; most employers pay a higher state or local rate for each worksite. Tipped, youth, and subminimum rules are narrow; the UK National Living Wage is a separate system. Pay the highest applicable rate, keep accurate hours, and connect wage floors to overtime and gross pay literacy in your working conditions policies.

Verify rates and classifications with counsel before changing compensation. Official US starting point: DOL minimum wage; UK bands: GOV.UK minimum wage rates.