Minimum Wage:
Definition & Comparison

Minimum wage is the lowest hourly wage an employer can legally pay an employee, established by federal law under the Fair Labor Standards Act (FLSA) and enforced by the U.S. Department of Labor. The federal minimum wage applies to covered nonexempt workers employed at private companies and in federal, state, and local governments. The current federal minimum wage is $7.25 per hour, a rate that has remained unchanged since 2009.

President Franklin D. Roosevelt signed the FLSA into law in 1938, initially setting the minimum wage at just 25 cents per hour. The law was designed to stabilize the post-depression economy and protect workers in the labor force by creating a minimum standard of living to protect the health and well-being of employees. The FLSA also established standards for overtime pay, record keeping requirements, and child labor regulations.

Related terms: Fair Labor Standards Act, hourly wage, covered nonexempt workers, overtime pay

State minimum wages can be higher than, equal to, or lower than the federal minimum wage of $7.25 per hour. When an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages. If a state's minimum wage is less than the federal minimum wage, employers covered by the FLSA must pay the federal rate of $7.25. If the state minimum wage is more than the federal rate, employers must pay the higher state rate.

States fall into 4 classifications for minimum wage: states with minimum wages higher than the federal government's, states with statutes which explicitly match the federal minimum wage, states without any minimum wage statute (which results in that state's minimum wage automatically matching the federal minimum wage), and states which explicitly set out a minimum wage lower than the federal government's. Municipalities, cities, or counties may also have local minimum wage laws if the laws are compliant with federal and state laws.

Washington, D.C., has the highest minimum wage rate in the country at $17.95 per hour. Among states, Washington has the highest minimum wage at $17.13 per hour, followed by New York at $17.00 per hour for New York City, Nassau County, Suffolk County, and Westchester County.

Eighteen states and Washington, D.C., have minimum wages of $15.00 or more in 2026:

• Arizona ($15.15)
• California ($16.90)
• Colorado ($15.16)
• Connecticut ($16.94)
• Delaware ($15.00)
• Florida ($15.00, effective September 30, 2026)
• Hawaii ($16.00)
• Illinois ($15.00)
• Maine ($15.10)
• Maryland ($15.00)
• Massachusetts ($15.00)
• Missouri ($15.00)
• Nebraska ($15.00)
• New Jersey ($15.92)
• New York ($17.00 in NYC metro area, $16.00 in rest of state)
• Oregon ($15.05 standard state rate, $16.30 Portland Metro Area)
• Rhode Island ($16.00)
• Washington ($17.13)
• Washington, D.C. ($17.95)

Twenty-one states are experiencing a minimum wage increase in 2026:

• Alaska (rising to $14.00 on July 1, 2026)
• Arizona ($15.15)
• California ($16.90)
• Colorado ($15.16)
• Connecticut ($16.94)
• Florida ($15.00 on September 30, 2026)
• Hawaii ($16.00)
• Maine ($15.10)
• Michigan ($13.73)
• Minnesota ($11.41)
• Missouri ($15.00)
• Montana ($10.85)
• Nebraska ($15.00)
• New Jersey ($15.92)
• New York ($17.00 in NYC metro area, $16.00 in rest of state)
• Ohio ($11.00)
• Rhode Island ($16.00)
• South Dakota ($11.85)
• Vermont ($14.42)
• Virginia ($12.77)
• Washington ($17.13)

Many of these states adjust their minimum wage annually based on a set formula tied to the Consumer Price Index or other economic indicators.

The federal minimum wage for employees who receive tips is $2.13 per hour. The amount of tips plus the $2.13 must reach at least $7.25 per hour. If the combination of tips and the base wage does not equal at least the federal minimum wage of $7.25, the employer must pay the difference to make up for the shortfall.

The minimum wage for tipped employees varies by state, as some states have their own requirements that may be higher than the federal rate. States may also have different minimum wages for tipped workers compared to their standard minimum wage. Employers must consult their specific state's regulations to ensure compliance with tipped employee wage requirements.

The federal minimum wage does not automatically increase on a set schedule. The FLSA is an evolving document, but it doesn't automatically increase the minimum wage. The president must sign any change to the federal minimum wage into law through Congressional action. The current federal rate of $7.25 per hour was enacted in 2009 and has remained unchanged for over 15 years.

In contrast, many states have implemented automatic annual adjustments to their minimum wages based on formulas tied to the Consumer Price Index or other economic indicators. These state-level increases occur independently of federal action.

The following 20 states defer to the federal minimum wage requirement of $7.25 per hour:

• Alabama
• Georgia
• Idaho
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Mississippi
• New Hampshire
• North Carolina
• North Dakota
• Oklahoma
• Pennsylvania
• South Carolina
• Tennessee
• Texas
• Utah
• Wisconsin
• Wyoming

Five states have no state minimum wage law (Alabama, Louisiana, Mississippi, South Carolina, and Tennessee), which means employers subject to the Fair Labor Standards Act must pay the current federal minimum wage of $7.25 per hour.

Congress exempted certain employees from the minimum wage provisions under the FLSA. Executives, administrators, professionals, and outside salespersons are exempt from minimum wage requirements, likely because Congress believed these employees had a higher level of bargaining power and were not as vulnerable to overreaching by their employers.

Other exemptions apply under specific circumstances to workers with disabilities, full-time students, youth under age 20 in their first 90 consecutive calendar days of employment, tipped employees, and student learners. A minimum wage of not less than $4.25 may be paid to employees under age 20 for their first 90 consecutive calendar days of employment, as long as their employment does not displace other workers.

Independent contractors are not necessarily covered by minimum wage laws, as the FLSA's requirements only apply to employees as opposed to independent contractors. Courts determine employee status case-by-case based on the economic reality of the relationship and whether the individual is economically dependent on the business.

Employers that don't comply with minimum wage requirements may face significant civil and criminal penalties. The FLSA affords a private right of action for employees to recover unpaid minimum wages, and an employee may bring a claim on their own behalf and on behalf of any similarly situated employees.

Civil remedies can include all unpaid compensation, liquidated damages, reinstatement, and attorneys' fees. The Wage and Hour Division of the Department of Labor can investigate violations, compel the attendance of witnesses at hearings, require employers to make records available, sue to restrain violations, and recover unpaid benefits on behalf of employees. Individual managers or owners can be held personally liable for civil damages if they effectively control an employer or serve as an alter ego of it. The FLSA also provides for criminal penalties and fines for violations.

While overtime pay may be calculated based on an employee's regular rate (which could be the minimum wage), minimum wage and overtime are two distinct concepts. Minimum wage relates to all hours worked and establishes the lowest hourly rate an employer can pay. Overtime represents an extra payment for any hours worked in excess of 40 per week, typically paid at one and one-half times the employee's regular rate of pay.

Premium overtime pay requirements vary by state. Some states require daily overtime after 8 hours in a workday, while others only require weekly overtime after 40 hours. The overtime premium rate is one and one-half times the employee's regular rate unless otherwise specified by state law. Any work in excess of designated hours must be compensated at the overtime rate, regardless of whether the employee earns minimum wage or a higher hourly rate.

Yes, all small businesses must adhere to their applicable state's minimum wage, unless otherwise specified by the state itself. Some states have different requirements based on the number of employees or annual gross receipts. For example, New Jersey requires a lower minimum wage of $15.23 per hour for employers who employ fewer than 6 people, compared to the standard rate of $15.92 for larger employers.

Similarly, Ohio has different rates for employers with annual gross receipts of $405,000 or more ($11.00 per hour) versus employers with annual gross receipts under $405,000 ($7.25 per hour). Montana allows businesses not covered by the Fair Labor Standards Act with gross annual sales of $110,000 or less to pay $4.00 per hour, though individual employees producing or moving goods between states must be paid the greater of the federal or Montana minimum wage.

Most states require the same minimum hourly wage for minors as they would for legal adults. However, certain states may allow for a lower minimum wage for minors under specific circumstances. The federal FLSA permits a youth minimum wage of not less than $4.25 per hour for employees under age 20 during their first 90 consecutive calendar days of employment, provided their employment does not displace other workers.

Some states set subminimum rates for minors, students, or have a training wage for new hires. Full-time students may also be eligible for exemptions or reduced rates under specific circumstances. Employers should consult their state's labor laws to understand the exact requirements for employing minors and student workers, as regulations vary significantly by jurisdiction.

Minimum wage is often compared to 3 related wage and compensation concepts:

Minimum Wage vs. Living Wage

Minimum wage establishes the legal floor for hourly compensation that employers must pay, while living wage represents the income level necessary for workers to afford basic necessities such as housing, food, healthcare, and transportation in their specific geographic area. Living wages typically exceed minimum wages and vary significantly by location based on cost of living.

Minimum Wage vs. Prevailing Wage

Minimum wage is a universal legal requirement that applies broadly to covered employees across industries, while prevailing wage applies specifically to government contracts and public works projects. Prevailing wage rates are determined by surveying actual wages paid to workers in specific occupations and localities, often resulting in rates significantly higher than minimum wage.

Minimum Wage vs. Fair Wage

Minimum wage is a concrete, legally enforceable wage floor set by government legislation, while fair wage is a more abstract concept that considers factors like worker productivity, company profitability, industry standards, and equitable compensation. Fair wage discussions often inform policy debates about whether minimum wage levels are adequate or should be increased.