Wages and Overtime
Minimum wages. Prevailing wages. Overtime pay. These are regulated by federal and state laws designed to protect employees. Here, we review key federal and state standards that employers should understand.
Federal Minimum Wage Requirements
The federal minimum wage to be paid by covered employers is $7.25 an hour. These employers include businesses that produce or handle goods for interstate commerce; businesses with annual dollar volume of business of $500,000 or more; and certain other businesses, including hospitals and nursing homes, private and public schools, and federal, state and local government agencies.
Minnesota Minimum Wage Requirements
WHO IS COVERED
The minimum wage law covers full-time and part-time employees, whether paid hourly rates, commissions, salaries or piece rates.
Tipped employees are also covered; Minnesota does not allow for tips received by employees to be credited toward the payment of minimum wages.Under the law, employers must pay their employees the minimum wage for all hours worked.
“Hours worked” includes training time, waiting time, rest periods of fewer than 20 minutes and any other time the employees must be at work.
WHO IS NOT COVERED
Employees who are exempt from minimum wage requirements include:
- taxicab drivers;
- volunteers of nonprofit organizations;
- people providing police or fire protection; employees subject to the provisions of the U.S. Department of Transportation (drivers, drivers' helpers, mechanics and loaders); and
- other workers listed under Minn. Stat §177.23, subd. 7.
Large employers, whose gross annual volume of sales made or business done is $500,000 or more, need to pay a minimum wage of at least $9.86 per hour as of January 1, 2019.
Small employers, whose gross annual volume of sales made or business done is less than $500,000, need to pay a minimum wage of at least $8.04 per hour as of January 1, 2019.
Training Rate for Employees Aged 18 and 19
The minimum wage training rate may be paid to employees aged 18 and 19 the first 90 consecutive days of employment is $8.04. As of January 1, 2019.
Youth Rate for Employees Aged of 17 and Younger
The minimum wage paid to employees aged 17 or younger who are not covered under federal law is $8.04. As of January 1,2019.
J-1 Visa Employees
Applies to employees of hotels, motels, lodging establishments and resorts working under the authority of a summer work, travel Exchange Visitor (J) non-immigrant visa is $8.04. As of January 1, 2019.
State and federal minimum-wage law
- The state minimum-wage is higher than the federal minimum-wage, so employees who are covered by both laws must be paid the higher state minimum-wage.
- Minimum-wage rates apply to all hours worked, whether part time or full time.
- Employees must be paid at least the current minimum-wage rate, no matter how they are paid.
- No employer may take a tip credit against minimum wages in Minnesota.
- An employee must be paid at least the minimum wage per hour, plus any tips the employee might earn.
- A partial list of exempt employees includes: bona fide executive, administrative or professional workers; babysitters; volunteers of nonprofit organizations; and employees subject to the provisions of the U.S. Department of Transportation (drivers, drivers' helpers, mechanics and loaders).
- Under Minn. Stat §177.28, the Minnesota Department of Labor and Industry is authorized to issue a permit to a disabled worker (performance-limited employee) unable to earn the state minimum-wage, to work at a wage commensurate with his or her ability. View the Disabled-worker employment information guide.
- See Minn. Stat §177.23, subd. 7 for a complete list of exempt employees
Review Minnesota Department of Labor & Industry Minimum wage in Minnesota.
Updating Wage Postings
Employers are required to post a current notice of the applicable federal minimum wage rates and related obligations. Failure to post an updated notice may result in fines of up to $10,000. Updated posters may be downloaded free of charge from the U.S. Department of Labor. View:
Wages Using Payroll Card Accounts
Employers are allowed to pay employee wages via payroll card accounts. Employers are not required to use payroll card accounts, even if requested by employees. Payroll debit cards allow an employee’s net pay to be applied to a payroll account. The employee can then use the card to make purchases and withdraw cash at ATMs. Payroll accounts allow wages to be electronically transferred, eliminating the need for check cashing charges.
Before using payroll card accounts, employers first must register online through the Minnesota Department of Labor and Industry’s Payroll card issuer registration. In addition before using payroll card accounts, an employer must provide employees written disclosure, in plain language, of all the employee’s wage payment options. The disclosure must also include certain information, such as fees that would apply.
Use of a payroll card account cannot be a condition of hire or of continued employment, and employers may use the accounts only for those employees who voluntarily consent in writing on the disclosure form. The employer must retain the signed disclosure and provide a copy to the employee.
Employers must not charge employees any initiation, participation, loading or other fees to receive their wages via payroll card accounts, and payroll card issuers must not impose inactivity or dormancy fees. Also, any allowable fees imposed by the employer or the payroll card issuer that were not disclosed to the employee at the time of providing written consent may not be deducted or charged.
The law requires that an employee must be able to withdraw, by a free transaction, wages transferred to the account on the employee’s regular payday. Employers are required to provide employees, upon request, one free transaction history each month.
The linking of payroll cards and accounts with credit, including loans against future pay and cash advances, is prohibited. Employers are also prohibited from using personal information generated by an employee’s use or possession of the card or account for any purpose other than processing transactions and administering the account.
Employers may continue to pay employees via cash, paycheck and direct deposit. Employees may opt out of direct deposit by written objection to the employer. Employers must give employees wishing to switch from payroll card accounts to another payment method a written form on which to indicate the change; the employer has 14 days to implement the new requested method.
Overtime Pay Requirements
The federal act requires that covered non-exempt employees receive overtime pay at a rate of one and one-half times their regular rate of pay after 40 hours of work in a workweek. Exemptions from the federal overtime pay requirements are addressed above.
A workweek is a period of 168 hours during seven consecutive 24-hour periods. It may begin on any day of the week and any hour of the day established by the employer, but the established workweek must remain consistent. For purposes of computing overtime pay, each workweek stands alone; there can be no averaging of two or more workweeks (except for hospital or nursing home employees on an “8 and 80”).
Overtime pay must be based on the regular rate. Generally, the regular rate includes all payments made by the employer to or on behalf of the employee (i.e., non-discretionary bonuses, incentive pay, shift differentials), although some statutory exceptions may apply. To calculate the regular rate, divide all pay received by all hours worked in the work week.
Overtime compensation must be paid in cash wages. There is an exception for public sector employees who can accrue hours worked over 40 as compensatory time to be paid out at a rate of time and one-half, in lieu of cash wages.
The Minnesota Fair Labor Standards Act requires employers to pay overtime for all hours worked in excess of 48 per workweek, unless the employee is specifically exempt under Minn. Stat. 177.23, subd. 7.
Overtime pay must be at least one-and-one-half times the employee's regular rate of pay. This is calculated by dividing the total pay in any workweek by the total number of hours worked in that week.
Overtime is based on actual hours worked in a seven-day workweek, so holiday hours, vacation time and sick leave are not counted. Employees are not entitled to overtime pay if they do not work more than 48 hours in a seven-day work week.
Review Minnesota Department of Labor & Industry Overtime Laws.
Prevailing Wage Laws
Both the federal government and the state of Minnesota by law require contractors who are awarded government funds for public works projects to pay their employees the prevailing wage for the locality in which the project is located. In addition, prevailing wage laws apply to recipients of state funds for certain economic development projects.
The law applies to three forms of state financial assistance:
- Economic development grants where a single business receives $200,000 or more of the grant proceeds
- Loans made by a state agency for economic development purposes where the loan recipient receives $500,000 or more of the loan proceeds
- Sales tax reductions or abatements made for economic development purposes in certain geographic areas
Economic development is defined as financial assistance provided to a person directly or to a local unit of government or nonprofit organization on behalf of a person who is engaged in the manufacture or sale of goods and services, except for financial assistance provided for certain housing projects.
The law requires the person receiving or benefiting from the financial assistance to certify to the commissioner of Labor and Industry that laborers and mechanics assigned to the project will be paid the prevailing wage rate for the area. The prevailing wage rate is determined periodically by the Minnesota Department of Labor and Industry.
The federal government enforces the Davis-Bacon and related acts, which require the payment of prevailing wage rates and fringe benefits on federally-financed or assisted construction, and the Service Contract Act, which requires the payment of prevailing wage rates and fringe benefits on contracts to provide services to the federal government.
The prevailing wage rate is defined as the hourly basic rate of pay plus the employer's contribution for health and welfare, vacation, pension, and other economic benefits paid to the largest number of workers engaged in the same class of labor in the area. Area is defined as the county or other locality from which labor for any project normally is secured. See current prevailing wage rates at Prevailing-Wage Information.
Consultants at our Small Business Assistance Office can help you understand more about wage and overtime requirements. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.
Our Guide to Starting a Business in Minnesota covers this and An Employer's Guide to Employment Law Issues in Minnesota provide a deeper look at this and other issues that commonly arise in the workplace.