What is the Federal Minimum Wage?

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  • Written By: Renee Booker
  • Edited By: E. E. Hubbard
  • Last Modified Date: 15 February 2020
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A federal minimum wage law is a nationally determined wage that all eligible employees must be paid per hour. Within the United States, the federal minimum wage has increased over the years as the cost of living has increased. Individual states may set a higher minimum wage rate but may not fall below the national minimum wage rate.

The concept of a federal minimum wage rate was first introduced as a response to concerns about people — many of whom were immigrants, women, and children — working long hours for low pay in many of the country's factories. A number of U.S. states enacted minimum wage laws prior to the federal government setting a national standard. Initial attempts at setting a minimum wage law were shot down by the United States Supreme Court as unconstitutional. Eventually, the current minimum wage law was passed and upheld as part of the Fair Labor Standards Act of 1938.

Not all employees are covered under the federal minimum wage law. There are two basic ways in which an employee may be covered — enterprise coverage and individual coverage. A person is covered under enterprise coverage if he or she works within an industry that is required to pay minimum wage. Businesses with a certain annual revenue, government agencies, schools, and hospitals are examples of industries that are required by law to pay employees at least the federal minimum wage.


Individual coverage under the federal minimum wage law is somewhat more complicated. Basically, the individual's work must regularly involve him or her in inter-state commerce. While this sounds daunting, in reality almost all business is involved in inter-state commerce in one form or another since the advent of the digital age. Even the janitor who works in a factory where goods are produced that will ultimately be sent out of state qualifies. In addition, domestic workers such as cooks, housekeepers, and nannies are usually covered.

Workers who regularly receive a substantial portion of their wages from tips are also subject to minimum wage laws; however, the wage rate is calculated differently. A worker who receives a substantial amount of income from tips, such as a waitress, must be paid a minimum hourly rate that is significantly less than other hourly employees. In theory, the employee's hourly rate plus tips must equal the federally set minimum hourly base rate for other workers who do not receive tips as part of their income.


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