How often does the minimum wage change?
The minimum wage in the United States varies significantly depending on the level of jurisdiction—federal, state, or local. Learn about the differences below:
Now, even though the federal minimum wage has remained at $7.25 per hour since July 2009, many states set higher minimum wages than the federal rate to reflect regional living costs.
For instance, As of January 1, 2024, the District of Columbia has the highest minimum wage in the United States at $17.00 per hour, followed by Washington state at $16.28 per hour.
The states that have a minimum wage of $5.15, they’re for any employers who are not covered by the Fair Labor Standards Act. Nevertheless, most employers are covered by the FLSA and must pay the federal minimum wage of $7.25.
State minimum wage vs. Federal minimum wage vs. Local minimum wage
The minimum wage in the United States varies significantly depending on the level of jurisdiction—federal, state, or local. Learn about the differences below:
Federal Minimum Wage
- Set by: The US Congress under the Fair Labor Standards Act (FLSA).
- The current rate: is $7.25 per hour. This applies to all states — states cannot set a lower minimum wage than the federal rate.
- Coverage: Applies nationwide to most employees engaged in interstate commerce or meeting certain enterprise coverage threshold.
- Lower state rates: States may have a legal minimum wage lower than $7.25 per hour, but for nearly all covered employees, the $7.25 federal rate acts as the floor.
State Minimum Wage
- Set by: The US Congress under the Fair Labor Standards Act (FLSA).
- The current rate: is $7.25 per hour. This applies to all states — states cannot set a lower minimum wage than the federal rate.
- Certain variations:
- Some states (like California, Washington, New York) have higher rates.
- A few states (like Alabama, Mississippi) have not state minimum wage rates and adhere to the federal rates.
- When a state’s minimum wage is higher than the federal rate, covered employees in the state receive the higher state rate.
Local Minimum Wage
- Set by the Local governments (cities or counties).
- Can exceed both state and federal rates, and are often enacted in high cost-of-living areas.
- Few examples include: Seattle (WA), San Francisco (CA), and Denver (CO).
- Applies only to employees working within the geographic boundaries of the city or country.
Rule of Application – The Highest Rate Wins
Under the FLSA’s preemption rules and state/local laws, and employees must be paid the highest applicable minimum wage among the three levels.
- If local > state > federal, the local rate applies.
- If state > federal but there’s no higher local rate, the state rate applies.
- If federal > state (rare, for non-covered state laws), the federal rate applies.
How is the minimum wage determined?
The determination of minimum wage involves a combination of federal, state, and local regulations and considerations. Here's a detailed look at how minimum wage rates are set:
Federal Minimum Wage
The federal minimum wage is set by the Fair Labor Standards Act (FLSA), dating back to 1938. To change the federal minimum wage, Congress has to pass a bill, and the President must sign it into law. These changes are often influenced by economic conditions, inflation, the cost of living, and political factors.
State Minimum Wage
States have the power to establish their own minimum wage through state laws. In some states, people can vote directly on minimum wage changes through voting initiatives. When setting these wages, states consider their own economic conditions, cost of living, and employment rates.
Many states also have provisions to review and adjust the minimum wage periodically, often based on inflation or cost-of-living indices.
Local Minimum Wage
Local governments, like cities and counties, can set their own minimum wage rates through local rules. They again look at the basics, that is, specific economic conditions, cost of living, and employment rates in their areas.
Local minimum wage laws can also be influenced by advocacy groups, labor unions, and public campaigns advocating for higher wages.
Determining Factors Across All Levels
All in all, these are the core factors influencing the Minimum wage all across:
- Cost of Living
- Inflation or the Consumer Price Index (CPI)
- Economic Research and reports showcasing changes in employment, business costs, and poverty levels
- The political composition of legislative bodies at the federal, state, and local levels
- Organizations advocating for workers' rights, business interests, and economic policy
In practice, the highest applicable minimum wage (federal, state, or local) is the one that workers receive in any given location.
Are there exceptions to the minimum wage laws?
Yes, there are several exceptions to minimum wage laws based on specific worker categories and circumstances:
- Tipped Employees: Employers can pay tipped workers a minimum of $2.13 per hour if the combined total of direct wages and tips meets or exceeds the federal minimum wage. If not, the employer must make up for the difference. States may have their own rules that provide higher benefits.
- Young Workers: Workers under age 20 can be paid $4.25 per hour during their first 90 consecutive days of employment. After this period or upon turning 20, they must receive at least $7.25 per hour.
- Full-Time Students: Students working in retail, service, agriculture, or educational institutions may be paid at least 85% of the minimum wage. They are limited to working 8 hours a day and 20 hours a week while school is in session, and up to 40 hours a week during school breaks. Once they graduate or leave school, they must be paid the full minimum wage.
- Student Learners: High school students involved in vocational education programs can be paid no less than 75% of the minimum wage while enrolled in these programs.
- Exempt Employees: For executive, professional, and administrative employees, the minimum salary threshold is set at $58,656 annually, which is double the state minimum wage.
- Nonexempt Employees: These employees, who are eligible for overtime, also receive the standard $16.00 per hour, with overtime pay required for hours worked beyond 40 per week or 8 per day.
Additionally, there are also sub-minimum wage certificates for workers with disabilities, full-time students, and student-learners.
Can states set their minimum wage lower than the federal minimum wage?
Some states have laws that set a minimum wage lower than the federal minimum of $7.25 per hour or have no state minimum wage law at all. Examples include states such as Georgia, Wyoming, Alabama, Mississippi, South Carolina, and Tennessee where the state minimum wage is set at $5.15 or does not exist by statute.
However, for the vast majority of employees covered under the Fair Labor Standards Act (FLSA)—which covers most private and public sector workers engaged in interstate commerce or meeting certain thresholds—the federal minimum wage of $7.25 per hour serves as a legal floor.
Employees not covered by the FLSA (such as some small business workers not engaged in interstate commerce) may be paid the lower state minimum wage or no state minimum wage if the state law allows.
For instance, Georgia and Wyoming have state minimum wages of $5.15 per hour, which is below the federal minimum. Still, most workers there must be paid at least the federal rate of $7.25 per hour because they are covered by the FLSA.
States have the flexibility to set their minimum wages above the federal level based on local economic conditions, cost of living, and policy goals, but cannot set a wage below the federal minimum for covered workers.
