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Minimum Wage Principles

There is constant debate about whether requiring employers to pay their employees a minimum wage is good public policy.

Henry Hazlitt (against): “The first thing that happens, for example, when a law is passed that no one shall he paid less than $30 for a forty-hour week is that no one who is not worth $30 a week to an employer will he employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.” (From Economics in One Lesson, Chapter XVIII Minimum Wage Laws)

Jeff Chapman and Michael Ettlinger (for): “The minimum wage has been an important part of the U.S. economy for 65 years. It is a statement of how the nation values work; it is a tangible measure of how Americans view employers’ obligation to their workers; it is an equalizer in a low-wage labor market where workers have little bargaining power; and it is an effective policy that helps low- and middle-income families with low-wage workers. These are the reasons why policy makers at both the federal and state level are acting to ensure that the minimum wage continues to be an effective floor to the wages of working Americans.” (From The Who and Why of the Minimum Wage)

Whether it is good policy or bad, the minimum wage is the law. The federal Fair Labor Standards Act imposes a national floor of $7.25 per hour, which is enforced by the U.S. Department of Labor. States may impose a higher minimum wage, which California has done with a minimum wage order (enforced by the Division of Labor Standards Enforcement) that requires California employers to pay at least $8.00 per hour. Minimum wage for sheepherders in California is $1422.52 per month.

Most employees who are exempt from the FLSA’s overtime provisions (such as executive, administrative and professional employees) are also exempt from the minimum wage requirement. Federal law recognizes some additional exceptions. Employers may apply for permission to pay sub-minimum wage under federal law to those whose productive capacity is impaired by physical or mental disability. The Department of Labor issues certificates that allow employers to pay full-time students 85 percent of the federal minimum wage. Under federal law, those under 20 need only by paid $4.25 for their first 90 days of employmentHigh school students at least 16 years old may be paid only 75 percent of minimum wage upon issuance of a certificate by the Department of Labor.

Under federal law, employers may credit the reasonable cost of employer-provided meals and housing against the minimum wage. Employers are also entitled to a credit for tips received by employees if they pay those employees at least $2.13 per hour cash wages and the employees receive at least $30 per month in tips.

California law differs. The sub-minimum wage for those under 20 only applies for the first 120 hours of employment. The student learner wage must be at least 85 percent of minimum wage. There is no credit for tips. The credit for meals and housing is limited to the amounts specified in the wage orders.

Another important difference is in how the rate of pay is computed. Under the FLSA, there is a minimum wage violation only if the employee’s average wage for a pay period in which no overtime is worked exceeds the minimum wage. California law requires the employer to pay at least the minimum for each hour worked. The federal averaging method is not appropriate under California law. For an explanation of the difference, see Armenta v. Osmose, Inc., 135 Cal. App. 4th 314, 37 Cal.Rptr.3d 460 (2005).