Payroll Articles
Minimum Wage
The federal minimum wage for covered Nonexempt Employees is $5.85 an hour starting July 24, 2007. It rises to $6.55 an hour on July 24, 2008 and to $7.25 an hour on July 24, 2009. The federal Minimum Wage provisions are contained in the Fair Labor Standards Act (FLSA). The FLSA contains mandatory standards for federal Minimum Wage rates at most U.S. companies, along with requirements for child labor, Overtime and Exempt vs. Nonexempt status.
Minimum Wage Basics
Nonexempt Employees paid on an hourly basis must receive at least the federal Minimum Wage for every hour worked. When Nonexempt Employees are paid in other ways, such as salary, commission, or a piece-rate basis, their pay must generate an hourly rate of at least the federal Minimum Wage when divided by the total hours worked in the workweek. Employers generally are restricted from making Deductions from an Employee's wages if the Deductions reduce the Employee's total compensation below the federal minimum wage for a workweek. This does not include Deductions for federal and state Payroll Taxes, Social Security, unemployment insurance, and voluntary Deductions such as Employee shares of insurance premiums and retirement plans.
If challenged, it is the employer's burden to establish that Nonexempt Employees received the federal Minimum Wage for all hours worked. As a result, employers should implement strict timekeeping procedures that accurately capture Nonexempt Employees' hours of work. Employers may also avoid costly FLSA lawsuits by training managers and supervisors on federal Minimum Wage issues and timekeeping rules. Supervisors should know, for example, not to alter time records or delete time entries for:
- Unauthorized Overtime Work performed before or after an Employee's regular shift
- Work performed during a lunch period or other break designated as unpaid
- Time spent "catching up" or meeting deadlines, even if it is the Employee's fault that the work is not complete
- Work performed "voluntarily" off-the-clock
- Work performed off-premises or at the Employee's home
Compensation for all work. As a general rule, Nonexempt Employees must be compensated for all hours of work that management knows of, or has reason to know of, even if the employer did not request or authorize the time or type of work performed. This means managers should not modify time records to delete entries for work that was performed without management's request or authorization, even for work performed against company policy or a specific directive. These types of entries should be addressed as disciplinary matters, not as grounds to deny pay. Otherwise, the employer and its individual managers may face legal liability for violating federal Minimum Wage laws and/or Overtime laws.
Wages other than cash included in Minimum Wage calculation. In addition to wages paid in cash
or check, Employees may be paid in non cash forms as well. They may be paid partly in room, board, or other facilities provided by the employer. These facilities may be used by employers to bring the cash wages below the Minimum Wage rate, but only if all the following tests are met:
- The Employee must actually benefit from the facilities and accept them voluntarily.
- The facilities must be supplied regularly to the Employee or regularly supplied by other employers in a similar business.
- The facilities must primarily benefit the Employee, not the employer.
- The employer can deduct only the reasonable cost of the facilities from the Employee's wages and cannot make a profit from providing the facilities.
These tests need not be considered if the Deductions for facilities do not bring the Employee's wages below the statutory minimum for the workweek.