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Minimum wage: Brush up on your legal obligations

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in Compensation and Benefits,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

THE LAW. The federal Fair Labor Standards Act (FLSA) requires virtually all employers to pay at least a minimum wage, now $5.15 an hour, to all nonexempt employees. Many states also set their own, often higher, minimum wages, and some of these rates vary by type of worker.

When federal and state laws differ, the higher minimum wage typically applies.

In some cases, federal law lets you pay a below-minimum wage to certain categories of workers, including the disabled, full-time students, tipped employees, youths under age 20 (for their first 90 days on the job), apprentices and messengers. But if you want to pay someone a subminimum wage, be ready to jump through hoops to get permission from the federal government.

WHAT'S NEW? Look for Con-gress this fall to debate raising the federal minimum from $5.15 to $6.65 an hour. Passage is more likely in the Senate than the House. The proposed hike would be phased in: 60 cents this year, 50 cents on Jan. 1, 2003, and 40 cents on Jan. 1, 2004. If passage appears likely, business groups will work to insert pro-employer provisions to make the bill more palatable.

Meanwhile, states are boosting their wage floors. The latest: Alaska this summer bumped up its minimum to $7.15 an hour, effective Jan. 1, 2003. And dozens of cities and counties have climbed on the "living wage" bandwagon. (See box at right.)

HOW TO COMPLY. For hourly workers, it's easy to know if you're in compliance. For workers paid on a piece rate, commission, fee or salary basis, you can usually determine whether you're meeting minimum wage rules by dividing the worker's total straight-time earnings by her total number of hours worked in the week. No matter how many hours an employee worked during a given workweek, her straight-time pay for all regular hours worked must at least equal the minimum wage.

In some situations, determining compliance is harder. Here are five common pitfalls:

1. Commissions. If you pay John a salary plus commissions, and his salary is high enough to cover the minimum wage for each hour worked each week, there's no problem. But if he is paid solely on commission, you must make up the difference for any week in which commissions fall short of the minimum wage.

2. Tipped employees. This refers to any worker who regularly receives more than $30 a month in tips. Under the FLSA, employers can claim a credit against their minimum-wage obligation. When they do, they must pay tipped employees a cash wage of at least $2.13 an hour. However, if an employee's tips combined with her $2.13 hourly cash wage don't equal the minimum wage, the employer must make up the difference.

3. Employees working at two or more rates. In this case, the regular rate is typically calculated by taking the total earnings from all rates for the week and dividing it by the total number of hours worked at all jobs.

4. Piece rates. If Mason is being paid by rate of production rather than a set hourly wage, you must divide his total earnings for the workweek by the number of hours worked that week. If the total is less than the legal minimum, you'll pay the difference. Each pay period, you have to pay the worker either actual piece-rate earnings or the minimum wage, whichever is greater.

5. Payroll deductions. As a rule, employers can't make payroll deductions that cut into the legal minimum wage. These deductions, though, are allowed even if they bring pay below the minimum:


  • Taxes



  • Reasonable cost of lodging



  • Union dues



  • Insurance premiums, as long as the payments don't benefit the employer



  • Savings plan requested by worker



  • Repayment of loans



  • Payments on store accounts, if the stores aren't affiliated with you



  • Wage garnishments, including court- ordered support payments



  • Wage deductions for lateness or absence

    Resources: Minimum wage

  • The U.S. Labor Department talks minimum wage at www.dol.gov/dol/ topic/wages/minimumwage.htm.

  • Find each state's minimum wage law and other labor laws at www.dol.gov/esa/programs/whd/ state/state.htm.


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