Wage and Overtime Requirements
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
Minimum wage applies only to “non-exempt” employees. “Non-exempt” employees are those employees who do not fall within one of the law’s narrow “exempt” categories ( e.g. executives, professionals, certain limited administrative employees, outside sales employees, etc. discussed at the end of this section). In practical terms, “non-exempt” is the default classification that applies to the majority of employees. All “non-exempt” employees must receive no less than the applicable minimum wage for each hour worked, keep a written record of all time worked, and receive overtime pay (time and one half) for all hours worked over the applicable number (40 hours under federal wage law; 48 hours under Minnesota wage law) in a workweek (the company’s designated 7-day work period).
When both the federal and state wage laws apply and their minimum wages differ, an employer must pay its non-exempt employees the higher applicable minimum wage for each regular hour worked.
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 $9.00 per hour. The minimum wage for large employers will increase to $9.50 per hour on August 1, 2016.
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 $7.25 per hour. The minimum wage will increase again to $7.75 per hour on August 1, 2016.
Exception for Employees Under the Age of 18
The new law allows “large employers” to pay employees under the age of 18 a lower minimum wage rate of at least $7.25 per hour and $7.75 per hour beginning on August 1, 2016.
Exception for Employees Under the Age of 20
During the first 90 days of employment, any employer may pay an employee under the age of 20 $7.25 per hour beginning on August 1, 2015; and $7.75 per hour beginning on August 1, 2016.
Exception for Certain Summer Work Travel Employees
An employer that is considered a “hotel or motel,” “lodging establishment,” or “resort,” as defined by Minnesota law, may pay a lower minimum wage rate to employees working under a summer work travel exchange visitor program non-immigrant visa, if the employer also provides a food or lodging benefit to the employee. For employees who qualify for this exception, the minimum wage is $7.50 per hour and $7.75 per hour beginning on August 1, 2016.
Prohibition of Displacement
The new law prohibits employers from displacing other employees to take advantage of the lower minimum wage rates for employees under the age of 18, employees under the age of 20, or employees who qualify for the summer work travel exception. This prohibition includes total displacement of employees as well as partial displacement through a reduction in hours, wages, or employment benefits.
Annual Adjustments for Inflation
Beginning in 2018, the Commissioner of Labor and Industry will adjust the minimum wage rates applicable to all employers and employees to account for inflation, up to a maximum of 2.5 percent per year. Beginning in 2017, the new minimum wage rates for the upcoming year will be announced by August 31st. However, the Commissioner may choose not to adjust the minimum wage rates for inflation if economic indicators indicate the potential for a substantial economic downturn.
In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.
Minimum wage rates apply to all hours work, whether part time or full time. Employers are required to pay for all hours worked including waiting time, call time, training time and any other time the employee is restricted to the premises of the employer.
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 these links: Poster overview http://www.dol.gov/compliance/topics/posters.htm#overview; elaws FirstStep Poster Advisor - http://www.dol.gov/elaws/posters.htm; and Office of Small and Disadvantaged Business Utilization - http://www.dol.gov/oasam/boc/osdbu/sbrefa/poster/ matrix.htm.
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, http://workplace.doli.state.mn.us/paycard/. 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. Employer’s 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.
As a general rule, employers covered by the Minnesota act are required to pay nonexempt employees time and a half for all time worked in excess of 48 hours in one workweek. Each workweek stands by itself. The employer may not average the worker’s hours over the two weeks. A special overtime law, Minn. Stat. § 177.25, subd. 2, applies to hospitals and the health care field.
State law allows for a series of exemptions to minimum wage and overtime requirements, depending on the nature of the work and the status of the employees.
Premium pay need not be made for a period when no work is performed, such as sick days, holidays, and vacations. Overtime applies only after 48 hours of actual work, not hours paid.
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
- 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 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 http://www.dli.mn.gov/LS/PrevWage.asp.
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.