Posted on: July 19, 2023                                                                                        

Employers have many important responsibilities, including compliance with federal, state and local minimum wage requirements. Unfortunately, myths that have developed about the minimum wage can make compliance even more difficult. To help you separate fact from fiction, we have debunked several common myths related to the minimum wage.

Myth #1: If you pay an employee a salary, you never have to worry about minimum wage.

Fact: The Fair Labor Standards Act (FLSA) requires virtually all employers to pay most employees at least the federal minimum wage for each hour worked, as well as overtime pay for all hours worked in excess of 40 in a workweek. The FLSA allows for exemptions from these overtime and minimum wage requirements for certain employees who work in the following types of jobs:

• Administrative
• Professional
• Executive
• Highly compensated
• Outside sales and
• Computer professional

These employees are known as "exempt" employees. To be considered "exempt," these employees must generally satisfy three tests:

1. Salary-level test. Employers must pay employees a salary of at least $684 per week to qualify for the executive, administrative and professional employee exemptions.
2. Salary-basis test. With very limited exceptions, the employer must pay employees their full salary in any week they perform work, regardless of the quality or quantity of the work.
3. Duties test. The employee's primary duties must meet certain criteria.

So, simply paying an employee a salary doesn’t necessarily mean they are exempt from the federal minimum wage (and overtime); the employee must meet all three tests above. And there are situations where an employer may choose to pay a nonexempt employee a salary. If the employee is nonexempt under federal law, the employer must ensure any salary is large enough to pay the employee at least the minimum wage for each hour worked (the nonexempt employee would also be entitled to overtime whenever they work more than 40 hours in a workweek under federal law).  

Keep in mind that several states have their own tests for exemption, some of which have higher salary requirements and/or different duties tests.  

Some of these states have exemptions that apply to overtime but not to the minimum wage. In these jurisdictions, even if the employee met all tests for overtime exemption, the employee would be entitled to the applicable minimum wage for each hour worked under state law. Any salary paid to the employee would need to take this into account.

Myth #2:  If an employer is based in one jurisdiction, but the employee works in another, the minimum wage where the employer is based applies.

Fact: In most cases, the minimum wage where the employee works applies.

Myth #3: If the federal, state, and local minimum wages all apply to an employee, the employer must pay the average of the three rates.

Fact: If all three minimum wages apply to the employee, you must comply with the rate most generous to the employee. For example, if your state minimum wage is $9.00 and the local minimum wage is $11.00, you must generally pay your nonexempt employees who work in that city at least $11.00 per hour, since it is higher than the state minimum wage of $9.00 and higher than the federal minimum wage of $7.25.

Myth #4: An employer can pay employees lower than minimum wage for nonproductive time, such as the time spent in training.

Fact: Under the FLSA, hours worked includes not only productive time (time actually spent working) but also certain nonproductive time, such as rest breaks, travel time, and training time. For nonexempt employees, all of this time must be compensated at a rate no less than the highest applicable minimum wage. For example, if the employee’s normal wage is $15.00 per hour and the highest applicable minimum wage is $11.50 per hour, you may pay them at least $11.50 per hour (but not lower) for time spent in training. However, it is a best practice, and a requirement in certain jurisdictions, to notify the employee in writing of the separate rate before they perform nonproductive work.

Myth #5: Employers can deduct from minimum-wage workers’ wages for the costs of supplying and cleaning uniforms.

Fact: Under the FLSA, deductions from a nonexempt employee’s wages for uniforms and associated maintenance must not bring the employee’s pay below the minimum wage. Similarly, employers cannot require employees to pay for these costs without reimbursement, if it would reduce their pay below the minimum wage. The requirement with respect to the maintenance of uniforms doesn't apply if the uniforms are:

• Made of "wash and wear" material;
• May be routinely washed and dried with other personal garments; and
• Do not require ironing or other special treatment.

Myth #6:  Employers may require a minimum-wage employee to reimburse the employer for a cash drawer shortage.

Fact: Under the FLSA, as with deductions for uniforms, these deductions may not bring nonexempt employees' pay below the minimum wage. Some states also prohibit or place restrictions on these types of deductions, so check your state law to ensure compliance.

Myth #7: If a tipped employee’s cash wages and tips don’t meet the minimum wage, employers aren’t required to make up the difference.

Fact: Under the FLSA, tipped employees must be compensated at least $2.13 per hour in direct cash wages, and up to $5.12 in tips per hour can be applied toward meeting the minimum wage (known as the "tip credit"). Employers must provide certain information to employees before they can use the tip credit and may count only tips actually received by the employee in applying the tip credit. If the employee's direct cash wages and tips don't meet the minimum wage, the employer must make up the difference.

Conclusion

Understand the federal, state and local minimum wage rules that apply to your employees and ensure that your pay practices comply. Additionally, be sure to post all applicable minimum wage notices in each work location.