What is a National Minimum Wage?

Definition: A National Minimum Wage is the lowest hourly rate permitted by the government that an employer can pay to its employees. Simply stated, is the least you can pay to a given person for his work.

What Does National Minimum Wage Mean?

Minimum wages are established by some countries to guarantee a fair compensation for low-skilled workers. By establishing a floor for their hourly rates the government ensures this particular segment of the labor market is properly protected from abuses. On the other hand, minimum wages can affect a company’s profitability if the job performed has less marginal value than the hourly rate paid. In the U.S., National Minimum Wage is called Federal Minimum Wage. This rate is approved by Congress and the current rate is $7.25. This rate is mandatory for any non-exempt worker, either salaried or hourly.

There are some jobs allowed by the Fair Labor Standards Act (FLSA) where an employer is permitted to pay a lower rate to its employees. This is the case for jobs where tips are earned as part of the regular duties performed. In this case, the employer can offer a lower hourly rate of $2.13. There’s an ongoing discussion on the properness and effectiveness of establishing national minimum wages, some of the detractors point out that by establishing these compensation floors, low-value activities are overcompensated and companies employ technological means to reduce costs, which in turn increases the unemployment level of low-skilled workers.

Here’s an illustration.

Example

Mr. Barter is an experienced painter. He’s currently unemployed but recently received an offer from Grey Projects Co. a company based in San Francisco that builds houses. The company is offering him an hourly rate of $5 for a painting job. Is this a legal proposal?

According to our definition, the National Minimum Wage is the lowest hourly rate than an employer is allowed to pay its employees. The minimum set for the U.S. is $7.25. This means Mr. Barter should decline this offer because the rate being offered is illegal.