Minimum wage compliance used to be a single number. It is now a matrix: a federal floor that has not moved in over fifteen years, state rates that adjust annually by formula, city and county ordinances that adjust on their own schedules, and separate rates for tipped employees, small employers, and specific industries.
For a multi-state employer, the practical risk is not ignorance of the law — it is a payroll configuration that was right last January and drifted out of compliance this one.
Rates in this guide require verification. Every figure below is marked [VERIFY] because state minimum wages are reset annually — most indexed states announce the coming year's rate in the fall of the prior year. Confirm each rate against the administering state agency before relying on it. The structural information in this guide — how each state sets its rate, whether a tip credit is permitted, whether local ordinances are preempted — is far more stable and is where most compliance errors actually originate.
The Federal Baseline
The federal minimum wage under the FLSA is $7.25 per hour, unchanged since July 24, 2009 — the longest period without an increase since the statute was enacted.
Two additional federal figures matter:
Who is covered. The FLSA applies through two routes. Enterprise coverage reaches businesses with at least $500,000 in annual gross volume of sales or business done, plus hospitals, schools, and government agencies regardless of revenue. Individual coverage reaches employees personally engaged in interstate commerce or the production of goods for commerce — a standard read broadly enough that most employees are covered even at businesses below the enterprise threshold.
Where federal, state, and local rates differ, the employee receives the highest applicable rate. This is the only rule in the entire subject that never changes.
How States Set Their Rates
Understanding the mechanism tells you when to expect a change and where to look for it. Every state falls into one of five categories.
Roughly twenty states now index annually. That is the single most important operational fact in this guide: for those states, your payroll configuration expires every year, whether or not anyone tells you.
States without their own minimum wage law
Alabama, Louisiana, Mississippi, South Carolina, and Tennessee have no state minimum wage statute. Covered employers follow the federal $7.25.
States with a rate below the federal minimum
Georgia and Wyoming each maintain a statutory rate below the federal minimum. For FLSA-covered employers the federal rate controls, so the state figure applies only to the small set of employers not covered by the FLSA at all. Do not configure payroll to the state figure.
The State Table
Tip Credits: Where They Are and Aren't Allowed
Seven states prohibit the tip credit entirely — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. In these states, tipped employees must receive the full state minimum wage in direct cash wages before tips. Tips are on top.
Where a tip credit is permitted, four federal conditions apply regardless of the state amount:
Tip pooling. Employers that take a tip credit may only pool among employees who customarily and regularly receive tips. Employers that pay the full minimum wage without a tip credit may operate a broader pool that includes back-of-house staff. Managers and supervisors may never keep tips from any pool, in either arrangement — this is one of the most frequently litigated points in the entire subject.
Overtime for tipped employees is calculated on the full minimum wage, not the reduced cash wage. Our overtime calculation guide covers the mechanics.
A growing number of cities and counties set rates above their state's — Seattle, New York City, San Francisco, Denver, Chicago, Los Angeles, and dozens of others. Several use different rates by employer size, and many adjust on July 1 rather than January 1.
Two questions decide whether you need to track them:
That second question is the live issue for employers with delivery drivers, field technicians, and remote staff. Establish the rule before the audit, not during it.
The federal minimum wage does not reach every employee. Common exemptions include:
State exemptions differ from federal ones and are often narrower. Never assume a federal exemption carries over.
Step 5 is the one most employers miss. In California and Washington, the exempt salary threshold is derived from the minimum wage — so a minimum wage increase silently reclassifies employees whose salaries no longer clear the bar.
$7.25 per hour, unchanged since July 2009. Where a state or local rate is higher, the higher rate applies.
Alabama, Louisiana, Mississippi, South Carolina, and Tennessee. Covered employers in those states follow the federal rate. Georgia and Wyoming have rates below the federal minimum, so the federal rate controls for covered employers.
Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington require the full state minimum wage in direct cash wages, with tips paid on top.
The highest applicable rate — federal, state, or local — always governs, unless the state preempts local wage ordinances entirely.
Generally the rate for the jurisdiction where the work is physically performed. Many local ordinances apply once an employee works a threshold number of hours in the jurisdiction during a week.
Only under the youth minimum wage, for employees under 20, and only for the first 90 consecutive calendar days. It cannot be used to displace existing workers, and several states do not permit it at all.
Treat minimum wage as an annual payroll maintenance task with a named owner and an October calendar entry, not as a legal question you answer once. Track the mechanism for each jurisdiction, not just the current number, and remember that in indexed states a minimum wage change can also move your exempt salary threshold.
For structured instruction, explore our FLSA Training Courses and Payroll Training Courses , or find jurisdiction-specific resources through HR Training by State
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