Regular Rates and the Minimum Wage

April 13, 2006

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The federal minimum wage is now $5.15 per hour. This is the minimum rate that must be paid to all nonexempt employees for each hour worked up to and including 40 in a calendar workweek. In some states, a higher minimum rate applies and you must pay your employee at least that higher rate.

The law doesn't require you to pay an employee on an hourly basis — it merely requires you to pay a covered employee for a workweek an amount at least equal to the minimum. Wages may be paid on an hourly, salary, monthly, piecework, or any other basis as long as the statutory minimum requirement is satisfied.

However, if you don't pay at a fixed hourly rate, you open yourself up to having to do all sorts of complicated calculations to determine the employee's "regular rate." For that reason, we recommend that you pay all your nonexempt employees at a fixed hourly rate.

What if the regular rate falls below the minimum wage? If an employee's regular rate is less than the minimum rate, then the employee's straight-time earnings will have to be adjusted to conform with the minimum wage requirement and the employee must be paid overtime on the basis of one and one-half times the minimum.

So, if the employee's regular rate falls below $5.15 per hour, you will have to adjust the employee's pay upward so that the regular rate is at least $5.15 per hour, and you will have to pay the employee time and a half based on the minimum wage rate of $5.15 (in other words, at least $7.725 per overtime hour).

Counting time-off pay toward the minimum wage. Can you credit holiday and vacation pay toward meeting the minimum-wage obligation? In other words, when you're adding up the hours an employee worked in a week, can you include a paid day off? No. The reason is that the federal law requires you to use compensation for "hours worked" and holiday or vacation pay is not paid as compensation for hours worked.

Suppose you're trying to figure out whether you met the minimum-wage obligations for the week that included Labor Day, which you gave as a holiday. Even though you might have paid your employees for that day, you can still use only the pay and hours from Tuesday through Friday of that week to determine whether you met your minimum-wage obligations.

Counting wage credits toward minimum wage. The federal law allows you to count board, lodging, and other facilities as part of wages for purposes of meeting the minimum wage requirements. A common example is meals provided by a restaurant to its employees. To take advantage of the rule, however, you have to meet several criteria:

You can count only the reasonable or fair value of the facilities (as opposed to the retail value).
The facilities must be furnished for the benefit of the employees, not just your own convenience.
The employees must be aware that the value of the facilities are being deducted from their cash wages. The employees must voluntarily accept the items. For example, in the case of free meals provided by a restaurant, employees must be allowed to opt out of the meal plan.
The facilities must be of a type customarily furnished by the employer or by other employers engaged in similar activities.

State laws. Some states also make provisions for wage credits in their minimum wage laws. Be sure to check your state laws to see if wage credits are covered by your state's minimum wage law.