Minimum Wage Generally
- The FLSA requires that virtually all employees earn at least the minimum wage of $7.25 per hour for all hours worked.
- Even if an employee is not paid by the hour—such as if the employee is paid on a salary, commission, or piece-rate basis—total compensation must average at least $7.25 per hour for all hours worked.
- For example, if an employee is paid $10 for every unit installed, and the employee installs 20 units in a 40-hour workweek:
- The employee earns $200 in the workweek (20 units installed x $10 per unit).
- The employee’s average hourly rate is $5 per hour ($200 in earnings ÷ 40 hours of work).
- The employee must therefore be paid an extra $2.25 per hour of work, totaling $90 (40 hours of work x $2.25 per hour), to comply with the FLSA’s minimum wage requirement of $7.25 per hour.
- State or local law may impose a higher minimum wage than the FLSA.
- The minimum wage requirement under the FLSA generally applies to all employees unless they fall within a particular exemption or exception under the law.
- As such, employees entitled to the minimum wage are typically referred to as “nonexempt” employees, while employees not entitled to the minimum wage are typically referred to as “exempt” employees.
Tipped Employees
- One of the key exceptions to the minimum wage requirement applies to “tipped employees.” If an employee is considered a “tipped employee,” the employee may be paid a direct cash wage of just $2.13 per hour, as long as the employee’s tips, when combined with the employee’s direct cash wage, bring the employee’s average hourly rate to at least the minimum wage of $7.25 per hour.
- The portion of the $7.25 minimum wage that the employer does not pay in cash, and instead uses the employee’s tips to cover (up to $5.12 per hour), is referred to as a “tip credit” taken by the employer.
- A “tipped employee” under the FLSA is defined as an employee “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”
- If the employee’s tips plus the employee’s direct cash wage do not total at least $7.25 per hour for all hours worked, the employer must pay the employee the difference. This requires that tips average at least $5.12 per hour when the employer pays a direct cash wage of $2.13 per hour.
- For example, if a tipped employee works 8 hours and earns $80 in tips, the employee earns an average of $10 per hour in tips ($80 in tips ÷ 8 hours of work). The employee’s average hourly rate thus exceeds $7.25 per hour—even before adding the employee’s direct cash wage—and the employee must only be paid the minimum direct cash wage of $2.13 per hour.
- By contrast, if a tipped employee works 8 hours and earns just $30 in tips, the employee only earns an average of $3.75 per hour in tips ($30 in tips ÷ 8 hours of work). The employee therefore must be paid a direct cash wage of $3.50 per hour—an amount higher than the minimum direct cash wage of $2.13 per hour—to ensure that the employee’s average hourly rate is equal to $7.25 per hour.
- When an employer takes advantage of the tip credit, tipped employees generally must retain all tips that they earn. An employer cannot keep for itself or use for any reason an employee’s tips if the employer utilizes the tip credit, including to pay for things like broken dishes, wasted food, or unpaid bills. However, there are two exceptions to this rule:
- (1) When an employer taking advantage of the tip credit operates a valid tip pool, an employee’s tips can be shared with other employees who customarily and regularly receive tips, such as waiters, waitresses, counter personnel, bussers, and bartenders. A valid tip pool may not include employees who do not customarily and regularly receive tips, such as dishwashers, chefs, and janitors.
- (2) When tips are paid by credit card, and the employer needs to pay a credit card processing fee on such charges, the employer may deduct the fee from a tipped employee’s tips.
- When an employer does not use the tip credit, and instead pays a tipped employee the full minimum wage directly, the employer may generally require the tipped employee to share tips with other employees—including non-tipped employees, like dishwashers, chefs, and janitors.
Babysitters Employed on a Casual Basis
- A babysitter is exempt from the minimum wage requirement if the babysitter is employed on a “casual basis,” generally requiring irregular or intermittent and non-vocational babysitting.
- Full-time babysitting, or regularly-scheduled babysitting in excess of 20 hours per week, ordinarily does not qualify as babysitting on a “casual basis.”
- A casual babysitter may perform some household work not directly related to caring for children, such as cleaning the house, but if such work exceeds 20% of the total time spent on a particular babysitting assignment, the minimum wage exemption will not apply.
Companionship Employees
- An employee hired to provide “companionship services” to an elderly person or a person with an illness, injury, or disability is exempt from the minimum wage requirement.
- “Companionship services” refers to the provision of fellowship (social, physical, and mental engagement, such as playing games, doing crafts, engaging in conversation, and accompanying the person on walks, errands, appointments, and social events) and protection (monitoring safety and well-being) to the person in need.
- An employee providing companionship services may perform some general care tasks, such as assisting the person with meal preparation, transportation, light housework, managing finances, taking medications, arranging medical care, getting dressed, eating, bathing, and grooming, but if such work exceeds 20% of the total hours worked by the employee, the minimum wage exemption will not apply.
- Only private individual, family, or household employers may claim the exemption. Third-party employers, such as home care agencies, cannot claim the exemption, even if the employee is jointly employed by a private household.
Agricultural Employees
- Most agricultural employees are not exempt from the minimum wage requirement. However, an agricultural employee may be exempt if any of the following conditions apply:
- (1) The employer did not use more than 500 “man days” of agricultural work in any calendar quarter (January 1–March 31; April 1–June 30; July 1–September 30; October 1–December 31) of the preceding calendar year;
- A “man day” is any day during which an employee performs agricultural work for at least one hour. Assuming farm employees work at least one hour each day, “man days” can be calculated by multiplying the number of employees on a farm by the number of days worked per week and by the number of weeks worked in the calendar quarter.
- For example, if a farm employed 8 workers for 5 days per week for 13 weeks (a full calendar quarter) in the preceding calendar year, the farm used 520 “man days” of agricultural work (8 workers x 5 days per week x 13 weeks) in the calendar quarter.
- (2) The employee is the immediate family member of the employer;
- “Immediate family member” for purposes of this exemption includes parents, spouses, children, step-parents, foster parents, step-children, and foster children.
- (3) The employee is principally engaged in the range production of livestock;
- To be engaged in the production of livestock, an employee must actively take care of the animals or stand by in readiness of that responsibility. Activities such as herding, transporting, feeding, watering, branding, or protecting the animals would qualify as the production of livestock.
- (4) The employee is a local hand harvest laborer who commutes daily from his or her permanent residence, is paid on a piece-rate basis, and was employed in agriculture for less than thirteen weeks during the preceding calendar year; or
- Hand-harvesting is defined as manually gathering or severing crops from the soil, stems, or roots using only hands or hand tools, not electronically powered mechanical devices.
- (5) The employee is a non-local hand harvest laborer who is 16 years of age or under, is paid on a piece-rate basis, is employed on the same farm as his or her parent (or person standing in the place of his or her parent), and is paid at the same piece rate as employees over 16 years of age.
Fishing Employees
- Employees engaged in the fishing industry are exempt from the minimum wage requirement if the employees are:
- (1) Employed in the catching, taking, propagating, harvesting, cultivating, or farming of any kind of fish, shellfish, crustacea, sponge, seaweed, or other aquatic form of animal and vegetable life; or
- Integral work performed in connection with exempt fishing operations, such as maintenance work on a fishing boat or mending fishing nets, is typically considered exempt as well.
- (2) Employed in the first processing, canning, or packing of any kind of fish, shellfish, crustacea, sponge, seaweed, or other aquatic form of animal and vegetable life, while at sea, in conjunction with fishing operations.
- “First processing” activities are ordinarily performed on a fishing boat immediately after catching seafood, such as freezing, filleting, scaling, salting, loading, and unloading.
- These activities are only exempt if performed at sea. The exemption does not cover workers who perform onshore work after unloading, even if such workers perform otherwise exempt duties, such as seafood canning and packing.
Seasonal Employees
- Employees of seasonal amusement or recreational programs, camps, and religious or nonprofit educational conference centers are exempt from the minimum wage requirement.
- To qualify as “seasonal” in this context, such an establishment must:
- (1) Not operate for more than seven months in any calendar year; or
- If a program only engages in non-public activities during the “off season,” such as performing maintenance work or ordering supplies, it is not considered to be operating for purposes of this exemption.
- (2) Accrue, during any (not necessarily consecutive) six months of the preceding calendar year, average receipts of not more than one-third of its average receipts for the remaining six months of such year.
- For example, if a seasonal program otherwise eligible for exemption earns $150,000 in its most profitable six months of the year, and earns $30,000 in the remaining six months of the year, employees of the program are exempt from the minimum wage requirement because the program’s average receipts in the remaining six months, equal to $5,000 per month, are less than one-third of its average receipts in its most profitable six months, equal to $25,000 per month.
- Examples of exempt establishments may include amusement parks, concession stands at baseball stadiums, and ice skating rinks.
Sailors/Seamen
- Employees who work as sailors/seamen are exempt from the minimum wage requirement if they perform work on a non-American vessel that is primarily designed to aid in the operation of the vessel as a means of transportation.
- A number of crew members may qualify for the exemption under this expansive definition, including engineers, radio operators, surgeons, cooks, and stewards.
- Unlike the overtime exemption (which applies to all vessels), the minimum wage exemption applies only to non-American vessels.
- A vessel is considered to be American (and therefore its employees cannot be exempt from the minimum wage requirement) if it is documented or numbered under the laws of the United States, or if it operates exclusively in the internal waters of a state.
- A sailor/seaman can spend up to 20% of his or her time performing non-sailor/seaman duties and remain exempt. If over 20% of the employee’s time is spent performing non-sailor/seaman duties, however, the employee cannot be classified as exempt.
- The exemption applies equally to vessels navigating inland waters and coastal or ocean-going vessels.
Disabled Workers, Full-Time Students, Learners, Apprentices, and Messengers
- Upon certification from the appropriate agency, certain disabled workers, full-time students, learners, apprentices, and messengers may be paid an hourly rate less than the minimum wage.
- The subminimum wage that may be paid to these workers (with prior approval) is designed to mitigate restrictions to the workers’ employment opportunities. It is not available to all workers fitting the referenced categories.
- A “disabled worker” in this context means an individual whose earning or productive capacity is impaired by age deficiency (requiring that the worker be at least 70 years old and that age impairs the worker’s productivity), physical deficiency, mental deficiency, or injury.
- A full-time student must be employed in a retail or service store, agriculture, or a college or university to fall under this exception.
- A “learner” is a worker who is being trained for an occupation not customarily recognized as an apprenticeable trade. Learners typically produce little or nothing of value when initially employed, and generally have less than 240 hours of training.
- A “student-learner” is a student employed on a part-time basis in a bona fide vocational training program.
- An “apprentice” is a worker who is employed to learn a skilled trade through a registered apprenticeship program.
- A “messenger” is a worker primarily engaged in delivering letters and messages for a business principally engaged in delivering letters and messages.
The “White Collar” Exemption (Executive, Administrative, Professional, or Highly Compensated Employees)
- “White collar” employees who meet certain criteria are exempt from the minimum wage requirement. To qualify as an exempt “white collar” employee, an employee must satisfy three requirements:
- (1) The employee must be paid on a salary basis. This requires that for any workweek in which the employee performs any work, the employee must be paid a predetermined and fixed amount, regardless of variations in the quality or quantity of the work (including the number of days or hours worked each workweek). The employee must also be paid a predetermined and fixed amount when no work is available, but the employee is ready, willing, and able to work.
- To be paid on a salary basis, an employee’s salary does not need to represent all compensation received by the employee, but there must be some amount of pay the employee will receive in any workweek in which the employee performs work (subject to the exceptions provided below).
- Even if an employee’s pay is expressed in hourly terms (which is fairly common among many payroll programs), the employee is still paid on a salary basis if the employee is paid a fixed amount for any week in which the employee performs any work, regardless of variations in the quality or quantity of the work.
- Administrative, Professional, and Highly Compensated Employees can be paid on a fee basis, instead of on a salary basis, to satisfy the first requirement of the “white collar” exemption. Payment on a fee basis requires the payment of a predetermined and fixed amount for a single job, regardless of the time required for its completion.
- Fee basis payments are only valid for the types of jobs that are unique in nature, rather than a series of jobs repeated indefinitely for which payment is made on an identical basis (as is the case for piece-rate payments).
- When an employee is paid on a salary basis, the employee’s pay should generally not be docked when the employee works only a partial workweek, regardless of how short or long. Impermissible pay docking is inconsistent with paying an employee on a salary basis, thereby potentially defeating the exemption. However, an employee’s pay may be docked for a partial workweek, without losing the exemption, if any of the following circumstances apply:
- (i) The employee is absent for one or more full days (not partial days) for personal reasons other than sickness or disability;
- Partial days worked typically cannot be docked, even if part of the day is not worked for personal reasons. Only full days may be docked for personal reasons. However, if an employer has a paid leave policy that covers time off for personal reasons (such as a general PTO allowance), the employer may deduct leave for partial days worked if doing so will not result in a reduction of pay.
- (ii) The employee is absent for one or more full days (not partial days) due to sickness or disability, and the employer has a paid leave plan that compensates employees for salary lost due to sickness or disability (such as paid sick leave or short-term disability), even if the employee is not yet eligible for the plan or already exhausted his or her paid leave under the plan;
- Like absences for personal reasons, while partial days worked due to sickness or disability typically cannot be docked, if an employer has a paid leave plan that covers time off for sickness or disability, the employer may deduct time off for partial days worked if doing so will not result in a reduction of pay. Unlike full day docking due to sickness or disability, however, when an employee exhausts or is not yet eligible for paid leave under the plan, partial day docking is not permitted.
- (iii) The employee is absent because of an unpaid disciplinary suspension of one or more full days for violating a written workplace conduct rule;
- To qualify for this exception, the written workplace conduct rule at issue must be applicable to all employees.
- A workplace conduct rule, as the name implies, may only relate to an employee’s conduct. Accordingly, while conduct such as sexual harassment or workplace violence may qualify, matters unrelated to conduct, such as absences or insufficient work quality, do not.
- (iv) The employee is taking unpaid leave pursuant to the FMLA;
- This exception applies to leave taken for both full and partial days, as long as the leave is unpaid and taken under the FMLA.
- (v) The employee is subject to a good faith penalty for violating safety rules of major significance;
- Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees.
- For example, a rule prohibiting smoking in explosive plants, oil refineries, and coal mines likely qualifies as a safety rule of major significance.
- (vi) The deduction is made to offset military pay, witness fees, or jury service fees received by the employee;
- Although deductions to offset these amounts earned by an employee are permitted, an employer cannot take deductions for partial week absences due to military, witness, or jury obligations. Doing so will defeat the exemption.
- (vii) The employee works less than a full workweek during the first or last workweek of the employee’s employment; or
- (viii) For public sector employers only, docking pay is also permitted when the employee is paid under a system that allows the accrual of personal leave and sick leave, and which requires pay to be reduced for absences for personal reasons or illness or injury of less than one workday, when accrued leave is not otherwise used because it has been exhausted, it was denied, the employee did not seek permission, or the employee chose to use leave without pay.
- Note that the law does not require an employer to pay an exempt employee when the employee performs no work in a workweek, regardless of the reason. The limitation on docking pay, and the exceptions to the rule, only apply when an exempt employee works part of a workweek.
- (2) The employee must satisfy the salary level test by earning at least $684 per week (equivalent to $35,568 per year).
- Nondiscretionary bonuses, incentive payments, and commissions may be used to satisfy up to 10% of the salary level test requirement, as long as they are paid at least annually.
- If an employee does not earn enough in nondiscretionary bonuses, incentive payments, and commissions in a year to retain his or her exempt status, an employer may make a “catch-up” payment, within one pay period after the end of the year, of up to 10% of the salary level test requirement.
- To determine whether the salary level test is satisfied when issuing payments on a fee basis, the amount of time worked to complete the job should be compared to how much money the employee would earn if the employee worked a typical full-time week of 40 hours.
- For example, if an artist is paid $400 to paint a portrait, and it took the artist 20 hours to complete the job, payment to the artist would satisfy the salary level test, as the artist would earn $800 in 40 hours of work (which is greater than the $684 per week requirement).
- (3) The employee must satisfy the duties test, which varies depending on whether the employee is an Executive, Administrative, or Professional Employee.
- To qualify as an Executive Employee, the employee must satisfy the following:
- (i) The employee’s primary duty must be managing the enterprise or a customarily recognized department or subdivision of the enterprise;
- “Primary duty” is the principal, main, or most important duty that the employee performs.
- “Managing” typically includes, but is not limited to, the following activities:
- Interviewing, selecting, and training employees;
- Directing employees’ work;
- Setting and adjusting employees’ pay rates and hours of work;
- Appraising and reviewing employees for purposes of recommending promotions, demotions, and other job changes;
- Handling employee complaints and grievances;
- Disciplining employees;
- Apportioning work among employees;
- Determining the techniques to be used;
- Controlling the budget;
- Overseeing the flow of materials, merchandise, and supplies; and
- Handling legal compliance measures.
- (ii) The employee must customarily and regularly direct the work of at least two or more full-time employees (or their equivalent, such as one full-time and two half-time employees); and
- “Customarily and regularly” does not mean constant, but it does mean greater than occasional. Tasks normally performed every workweek typically qualify as tasks performed “customarily and regularly.”
- (iii) The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
- In determining whether an employee’s suggestions and recommendations are given particular weight, courts often look to whether an employee’s job duties include making such suggestions and recommendations, as well as how often such suggestions and recommendations are made, requested, or relied upon.
- Notwithstanding these requirements, employees who own at least a 20% equity interest in the business, and who actively manage the business, are automatically considered exempt as Executive Employees. The salary basis and salary level requirements do not apply.
- The duties test assesses whether an employee’s duties—not title—support the exemption. As such, the exempt classification of employees with managerial titles (such as “assistant manager”) is a common source of litigation when such employees are alleged to not perform all of the duties listed above (or when such duties are not their primary or customary and regular duties).
- To qualify as an Administrative Employee, the employee must satisfy the following:
- (i) The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- “Primary duty” is the principal, main, or most important duty that the employee performs.
- To satisfy the “directly related to the management or general business operations” requirement, an employee must perform work that directly assists with running or servicing the business or its customers, including, but not limited to, work in functional areas such as:
- Taxes;
- Finance;
- Accounting;
- Budgeting;
- Insurance;
- Quality control;
- Purchasing;
- Advertising;
- Marketing;
- Research;
- Health and safety;
- Personnel management;
- Human resources;
- Public relations;
- Government relations;
- Computer networking;
- Database administration; and
- Legal and regulatory compliance.
- Merely working on a production line or selling a product does not qualify as work that is “directly related to the management or general business operations.”
- (ii) The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
- The exercise of “discretion and independent judgment” generally requires that the employee has authority to make an independent choice, free from immediate supervision or direction (though unlimited authority and a complete absence of oversight are not required). Factors to consider include, but are not limited to, whether the employee:
- Has authority to create, impact, interpret, or implement management policies or operating procedures;
- Carries out major assignments or performs work affecting the employer’s operations to a substantial degree;
- Has authority to commit the employer in matters that have significant financial impact;
- Has authority to waive or deviate from established policies and procedures without prior approval;
- Has authority to negotiate and bind the employer on significant matters; and
- Provides consultation or expert advice to management or is involved in planning long- or short-term business objectives.
- “Matters of significance” refers to the level of importance or consequence of the work performed.
- The Administrative Employee exemption depends on the particular duties performed and the extent and import of discretion exercised—not title or industry. For example, while certain employees in the financial services industry may be exempt if their duties primarily involve developing and providing advice and analysis to clients, others in the industry who primarily sell financial products may not qualify for the exemption, even if they share the same title. Likewise, while executive or administrative assistants with significant delegated authority may qualify for the exemption, employees with the same titles who primarily perform clerical duties and do not exercise sufficient discretion and independent judgment with respect to matters of significance may not qualify.
- To qualify as a Professional Employee, the employee must belong to one of the following two categories:
- (i) The employee may be a Learned Professional, requiring that the employee’s primary duty is the performance of work that requires advanced knowledge in a field of science or learning that is customarily acquired by a prolonged course of specialized intellectual instruction.
- “Primary duty” is the principal, main, or most important duty that the employee performs.
- The work performed by a Learned Professional must be predominantly intellectual in character and must require the consistent exercise of discretion and judgment. Work characterized as routine mental, manual, mechanical, or physical work does not qualify.
- Applicable fields of work include law, medicine, theology, accounting, engineering, architecture, teaching, physical/chemical/biological sciences, pharmaceuticals, and other fields that have a recognized professional status.
- The Learned Professional exemption is limited to professions where specialized academic training is a standard prerequisite. The exemption is not available for occupations that are customarily performed with an academic degree in any field or with knowledge primarily acquired through training and experience.
- Common examples of Learned Professionals include lawyers, doctors, physician assistants, dentists, dental hygienists, accountants, registered nurses, and teachers.
- Teachers, lawyers, and doctors do not need to meet the salary basis or salary level tests described above to qualify as exempt.
- For teachers to qualify as learned professionals, their primary duty must be teaching, tutoring, instructing, or lecturing in an educational establishment.
- An “educational establishment” includes elementary schools, secondary schools, higher education institutions, or special schools for mentally or physically disabled or gifted children. Introductory programs (such as nursery school programs) may qualify as educational establishments if they are included in the curriculum for elementary education established by state law, but do not qualify if they primarily provide custodial or babysitting care rather than educational instruction. Post-secondary career programs may also qualify as educational establishments if they are licensed by the appropriate state agency or accredited by a nationally recognized accrediting organization.
- No distinction is drawn between teachers at public, private, for-profit, or non-profit schools.
- Teachers who spend a considerable amount of their time in extracurricular activities, such as coaching sports or leading clubs, still qualify for the exemption.
- (ii) The employee may be a Creative Professional, requiring that the employee’s primary duty is the performance of work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- “Primary duty” is the principal, main, or most important duty that the employee performs.
- Qualifying fields of artistic or creative endeavor include, but are not limited to, music, writing, acting, and the graphic arts.
- Work characterized as routine mental, manual, mechanical, or physical work does not qualify.
- Work that requires invention, imagination, originality, or talent should be distinguished from work that can be performed by a person with general manual or intellectual ability or training.
- Common examples of Creative Professionals include actors, musicians, composers, and conductors. Other occupations, such as painters, cartoonists, novelists, writers, and journalists may also qualify, depending on how much creativity, originality, and imagination they are able to exhibit in performing their work.
- Alternatively, if an employee is considered a Highly Compensated Employee—that is, if an employee earns a total annual compensation of $107,432 or more, inclusive of at least $684 per week on a salary basis—the employee is deemed exempt if:
- (i) The employee’s primary duty includes the performance of office or non-manual work; and
- “Primary duty” is the principal, main, or most important duty that the employee performs.
- (ii) The employee customarily and regularly performs at least one of the exempt duties of an Executive Employee, Administrative Employee, or Professional Employee, as described above. As long as just one of the duties from any of those tests is satisfied, the other duties do not need to be met.
- “Customarily and regularly” does not mean constant, but it does mean greater than occasional. Tasks performed every workweek typically qualify as tasks performed customarily and regularly.
