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This content is for informational purposes only and is not intended to provide legal advice.
Many people wonder when an employer can pay less than minimum wage. There are a few instances when it is perfectly legal. Other times an employer is breaking the law.
How Is Employee Compensation Governed?
Most rules come from federal and state laws. The most powerful law is the Fair Labor Standards Act. The FLSA governs how employers can compensate their employees.
President Roosevelt signed it in 1938. Many considered it a large step in the right direction for worker’s rights. The tricky part is it has odd loopholes that allow mistreatment by employers. Many states are addressing these loopholes to stop exploitation.
Currently, the federal minimum wage is $7.25. Many states require a higher minimum wage. The federal minimum wage applies to companies that engage in interstate commerce.
First 90 Days For Youth Workers
Sometimes workers under the age of 20 can receive less than minimum wage. the catch is there are child labor laws that limit the hours they can work after school.
An employer can pay a young employee less than minimum wage for the first 90 days of employment. They can pay the employee no less than $4.25. Once that period is over, they must pay the minimum wage.
It is illegal to fire an under 20-year-old worker to avoid paying the minimum wage. Otherwise, they would hire and fire young employees to get away with low pay.
The Employee Makes Large Tips
An employer can pay less than the minimum wage if a large part of their compensation is from tips. This applies to hairdressers, bartenders, and waiters to name a few positions.
Problems arise when employers steal tips. Other times employers will pay less than the minimum wage for servers by mistake or on purpose.
Most in these jobs make far more than minimum wage per night. They may not be long-term careers, but many young people enjoy them. These jobs help the young gain large amounts of cash relatively quickly.
The Employee Is an Independent Contractor
An independent contractor is not an employee in the eyes of the law. This relates to the previous part about commissions. Many sales representatives work as 1099 independent contractors.
They are not entitled to any wage. The rep is only owed the contractual percentage of revenue they brought in.
Other independent contractors get paid the load or the mile. Truckers are an example of this. Most get per mile or by the length of their trip. Many are reimbursed for their lodging fees too.
Most independent contractors know what they are getting into. They have the chance to earn a high income by working harder than most people. These workers are allowed to set their own hours and terms.
Workers With Disabilities
Under the FLSA, an employer can pay someone with disabilities less than minimum wage too. This is sometimes called the subminimum wage. It depends if an employee has mental or physical impairments that slow their ability to work.
Some employees in this category are paid a fraction of the minimum wage for years. There are cases where they have won class-action lawsuits against their employers.
Prison Labor
This is another form of subminimum wage employees. Those in prison are seen as paying back their debts to society. Their employment is often seen as a privilege.
This is why many in prison get paid far below the minimum wage. Many people think of someone making license plates while they are in jail. The thing is they often work in a variety of manufacturing and agriculture jobs.
Student Workers
Many students work for their university. They tend to receive money off of their tuition for working. This is why they also can sometimes receive less than minimum wage.
Most of the time this isn’t an issue since they get big chunks of debt relief. They also gain practical work experience that will help them get a better job. It gives them enough income to comfortably focus on their studies.
How Minimum Wage has Loopholes
The minimum wage was a good step in providing a higher quality of life for workers. The issue is there are exemptions based on a law from almost 100 years ago.
There are still employers taking advantage of their employees. There are many times the mistreatment from employers doesn’t hold up in court.
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This content is brought to you by Timothy Walton.
Photo: Shutterstock
Hey Tim,
Can an employer pay a remote worker less than minimum wage in the state in which the employees live. For ex. My company is NV, but I work from home in MD. Employer is paying $10.00 hourly. MD minimum wage is $12.50. Please advise