Federal Minimum Wage (US)
The lowest hourly pay rate that US employers must pay non-exempt workers under the Fair Labor Standards Act (FLSA), set at $7.25 per hour since July 2009 and unchanged for over 15 years.
- What Is the Federal Minimum Wage?
- History of the Federal Minimum Wage
- Who Is Covered by the Federal Minimum Wage
- The Tipped Minimum Wage Problem
- The Purchasing Power Decline
- The Economic Debate Over Raising the Minimum Wage
- Federal vs State vs Local: The Preemption Battle
- Federal Minimum Wage Compliance for HR Teams
- The Future of the Federal Minimum Wage
- Frequently Asked Questions About the Federal Minimum Wage
What Is the Federal Minimum Wage?
Key Takeaways
- ✓The federal minimum wage is $7.25 per hour, set by the Fair Labor Standards Act and enforced by the US Department of Labor's Wage and Hour Division.
- ✓It hasn't increased since July 24, 2009, making this the longest stretch without a raise in the law's history.
- ✓Adjusted for inflation, the federal minimum wage has lost over 30% of its purchasing power since 2009 (Bureau of Labor Statistics CPI data).
- ✓About 1.1 million workers earned exactly $7.25 or less in 2023, representing 1.3% of all hourly workers (BLS, 2024).
- ✓Thirty states plus Washington, DC have set their own minimum wages above the federal floor, so the federal rate is effectively irrelevant in the majority of the country.
The federal minimum wage is the absolute lowest hourly rate that covered, non-exempt employers can legally pay workers anywhere in the United States. It's established by the Fair Labor Standards Act of 1938 (FLSA), which also governs overtime pay, child labor protections, and recordkeeping requirements. The current rate of $7.25 per hour took effect on July 24, 2009. It hasn't moved since. In 2024, $7.25 buys significantly less than it did in 2009. The Bureau of Labor Statistics' CPI calculator shows that $7.25 in 2009 had the same purchasing power as roughly $10.50 in 2024. Put another way, workers earning the federal minimum wage have taken an effective 30%+ pay cut over 15 years through inflation alone. This stagnation has made the federal minimum wage increasingly symbolic. Most workers in the US earn well above it, and most states have passed higher rates. But it still matters as the legal baseline in 20 states that haven't set their own higher rate, and it anchors the tipped minimum wage and youth sub-minimum wage provisions.
History of the Federal Minimum Wage
The minimum wage has been part of American labor law since the New Deal era. Understanding its trajectory explains why the current rate is so politically charged.
Origins in the Fair Labor Standards Act of 1938
President Franklin D. Roosevelt signed the FLSA into law on June 25, 1938, setting the first federal minimum wage at $0.25 per hour. The law initially covered only about 20% of the labor force, primarily workers in interstate commerce and manufacturing. Agricultural workers, domestic workers, and retail employees were excluded. The $0.25 rate had the purchasing power of roughly $5.40 in 2024 dollars.
Major increases through the decades
The federal minimum wage has been raised 22 times since 1938. Key milestones: $1.00 in 1956, $1.60 in 1968 (the peak in inflation-adjusted terms, equivalent to about $14.00 in 2024 dollars), $3.35 in 1981, $5.15 in 1997, $6.55 in 2008, and $7.25 in 2009. The pattern shows two trends: increases tend to come in clusters during Democratic administrations, and the gap between increases has grown wider over time. From 1938 to 1981, the longest gap was 8 years. Since 1997, there have been two gaps of 10+ years.
The 2009 freeze and failed raise attempts
Multiple bills to raise the federal minimum wage have been introduced since 2009. The most prominent was the Raise the Wage Act, which proposed a gradual increase to $15 per hour. It passed the House in 2019 but died in the Senate. Similar proposals in 2021 and 2023 also failed to advance. The political divide is stark: most Democrats support a $15+ federal minimum, while most Republicans argue the rate should be left to states or eliminated entirely.
Who Is Covered by the Federal Minimum Wage
Not every worker in America is entitled to the $7.25 rate. The FLSA draws specific coverage lines, and several categories of workers face different rules.
Enterprise and individual coverage
The FLSA covers enterprises with annual gross sales of $500,000 or more, as well as hospitals, schools, and government agencies regardless of revenue. Individually, any worker engaged in interstate commerce or producing goods for interstate commerce is covered. In practice, this captures the vast majority of US workers, since almost every business touches interstate commerce in some way (using credit cards, ordering supplies from other states, serving out-of-state customers).
Exempt workers
Salaried workers who meet the executive, administrative, professional, outside sales, or computer employee exemptions are not entitled to the minimum wage (or overtime). The salary threshold for most exemptions was $35,568 per year in 2024, though the DOL proposed raising it to $58,656. Highly compensated employees earning $107,432+ are also exempt if they perform at least one exempt duty.
Sub-minimum wage provisions
The FLSA allows employers to pay below $7.25 in specific circumstances. Tipped employees can be paid as little as $2.13 per hour if tips bring their total earnings to at least $7.25. Workers under 20 can be paid $4.25 per hour during their first 90 days of employment. Full-time students and certain workers with disabilities can receive sub-minimum wages under special DOL certificates, though the disability provision is being phased out under Section 14(c).
The Tipped Minimum Wage Problem
The tipped minimum wage is one of the most controversial aspects of federal wage law. At $2.13 per hour, it hasn't changed since 1991, making it the longest-frozen federal wage provision in US history.
How the tip credit works
Employers can take a "tip credit" of up to $5.12 per hour (the difference between $7.25 and $2.13). They pay $2.13 as a cash wage and count the worker's tips toward the remaining $5.12. If tips don't bring the worker's total hourly earnings to at least $7.25, the employer must make up the difference. In theory, this guarantees every tipped worker earns at least the full minimum wage. In practice, enforcement is weak, tip tracking is imprecise, and many employers fail to cover shortfalls. A 2014 DOL investigation sweep found violations at 84% of audited restaurants.
States eliminating the tipped minimum wage
Seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) don't allow a tip credit at all. Tipped workers in those states earn the full state minimum wage before tips. Several other states allow a tip credit but set it far below the federal level. The trend is toward elimination: five states have ended or significantly reduced their tip credits since 2018.
The Purchasing Power Decline
The federal minimum wage's real value depends not on its nominal rate but on what that rate actually buys. By every measure, its purchasing power has collapsed since the late 1960s.
Cost-of-living comparison: 2009 vs 2024
When the minimum wage was last raised in 2009, the median US rent was $842 per month. By 2024, it was $1,372. A gallon of gas cost $2.54 in July 2009; by mid-2024, it was $3.50. Health insurance premiums for single coverage averaged $4,824 in 2009 and $8,435 in 2024 (KFF Employer Health Benefits Survey). A full-time minimum wage worker in 2009 could cover median rent with 46% of gross income. By 2024, that figure rose to 76%, well above the 30% affordability threshold that HUD uses.
The Economic Debate Over Raising the Minimum Wage
Few economic topics generate as much disagreement as the minimum wage. The evidence has shifted significantly in the past decade, but genuine uncertainty remains about the effects of large increases.
The case for raising the federal minimum
Proponents cite several arguments backed by research. A landmark 2019 study by Cengiz, Dube, Lindner, and Zipperer analyzed 138 state minimum wage increases between 1979 and 2016 and found no significant overall job losses. The Economic Policy Institute estimates a $15 federal minimum would raise wages for 33 million workers and lift 1.3 million people out of poverty. Higher wages reduce turnover (Dube, Lester, and Reich found turnover fell 50% at fast food restaurants near state borders with wage increases), which saves employers money on hiring and training.
The case for caution
Opponents argue that the $7.25 to $15 jump is unprecedented in scale and could cause disemployment effects that smaller increases didn't produce. The Congressional Budget Office's 2021 analysis estimated a $15 minimum would raise wages for 17 million workers but eliminate 1.4 million jobs. Small businesses in low-cost regions (rural Mississippi is not the same labor market as Seattle) could be disproportionately harmed. Some economists advocate for regional minimum wages or a more moderate increase to $11 or $12 as a compromise.
What the academic consensus says
The consensus has moved toward the view that moderate minimum wage increases (10-15% of the prevailing wage) have little to no disemployment effect. The debate centers on what counts as "moderate." A jump from $7.25 to $15 is a 107% increase, which goes well beyond what most research has studied. The honest answer is that economists don't know for certain what would happen, because a federal increase of that magnitude has never been tried.
Federal vs State vs Local: The Preemption Battle
The federal minimum wage sits at the bottom of a three-layer system. States can set higher rates, and cities can go even further. But this layered approach has created political conflict over which level of government gets the final say.
How the hierarchy works
Under the FLSA's "highest rate" rule, workers are entitled to whichever minimum wage is highest: federal, state, or local. If you work in Seattle (city minimum $19.97), Washington State ($16.28), and the federal rate is $7.25, you earn $19.97. Simple. The complication is that 25 states have passed preemption laws that block cities and counties from setting minimum wages above the state level. In those states, the hierarchy is federal-state only, with no local option.
States that preempt local minimum wages
As of 2024, 25 states preempt local minimum wage ordinances. Most are in the South and Midwest: Alabama, Georgia, Indiana, Iowa, Kansas, Mississippi, North Carolina, Oklahoma, Tennessee, Texas, and Wisconsin, among others. Preemption disproportionately affects low-wage workers in cities within those states. Workers in Birmingham, Alabama would earn more if the city could set its own rate (Birmingham passed a $10.10 minimum in 2016, but the state legislature immediately preempted it).
Federal Minimum Wage Compliance for HR Teams
Even though most employers pay well above $7.25, the federal minimum wage creates compliance obligations that HR teams must track, especially for multi-state employers.
- Post the DOL's official minimum wage poster (WHD Publication 1088) in a conspicuous location at every work site
- Pay non-exempt employees at least the highest applicable rate: federal, state, or local
- Track hours worked accurately for all non-exempt workers, including pre-shift and post-shift work, mandatory meetings, and travel between job sites
- Ensure tipped employees' total hourly earnings (cash wage + tips) meet or exceed the applicable minimum wage for every pay period
- Review all payroll deductions to confirm they don't reduce effective pay below the minimum wage
- Maintain payroll records for at least 3 years (FLSA requirement) and time cards for at least 2 years
- Audit regularly for misclassification of workers as exempt, independent contractors, or volunteers
- Monitor state and local minimum wage changes, which often take effect on January 1 or July 1
The Future of the Federal Minimum Wage
The federal minimum wage's future depends on Congress, but the broader trend is clear: the action is happening at the state and local level, not in Washington.
Legislative proposals
The most recent major proposal, the Raise the Wage Act of 2023, would gradually increase the federal minimum to $17 by 2028 and eliminate the tipped minimum wage. Like previous versions, it lacks the 60 Senate votes needed to overcome a filibuster. Some bipartisan proposals have suggested indexing the minimum wage to inflation after a one-time increase, which would prevent future stagnation. No proposal has gained enough cross-party support to advance.
State momentum as a substitute
While Congress remains deadlocked, states are acting. Between 2014 and 2024, 30 states raised their minimum wages, and 10 have adopted automatic annual adjustments tied to CPI or median wage growth. Ballot initiatives have been particularly effective: minimum wage increases have passed by popular vote in Arizona, Arkansas, Colorado, Florida, Maine, Missouri, Montana, Nebraska, and South Dakota, often by wide margins even in politically conservative states. The practical result is a patchwork where the federal rate matters less each year.
Frequently Asked Questions
Can employers pay less than $7.25 per hour?
How many Americans actually earn the federal minimum wage?
Why hasn't the federal minimum wage been raised since 2009?
Does a higher minimum wage cause unemployment?
What is the minimum wage for federal contractors?
Written by Adithyan RK