Cecily Zamora
While federal law requires employers to pay their employees a minimum hourly wage, there are several ways businesses can get around this. For example, independent contractors, outside salespeople, seasonal workers, and certain types of farmworkers are exempt from minimum wage laws. Additionally, businesses can pay employees on a salary, commission, or piece rate basis, as long as total compensation divided by hours worked equals at least the minimum wage. Some states also have lower minimum wages for specific groups, such as full-time students and young workers, and allow for tipped employees to be paid less than the minimum wage if their tips make up the difference.
| Characteristics | Values |
|---|---|
| Worker type | Independent contractors, outside salespeople, commissioned sales employees, seasonal and recreational workers, executive/administrative/professional workers, farmworkers, full-time students, youth under 20, tipped employees, student-learners |
| Worker relationship | Family or voluntary workers, therapeutic reasons, no contractual obligation |
| Payment type | Salary, commission, wages plus tips, piece rate |
| Workweek | Covered employees must be paid at least the minimum wage multiplied by the hours worked |
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What You'll Learn
Paying independent contractors less than minimum wage
In the United States, federal law requires employers to pay all employees a minimum hourly wage, which is currently $7.25 per hour. However, federal law does not require employers to pay independent contractors the federal minimum wage. Minimum wage laws only apply to employees, and independent contractors are not entitled to the same protections as long-term employees.
However, it is important to note that even if an individual is classified as an independent contractor in an employment contract, this does not necessarily mean they are one. The true relationship between the employer and the contractor must be assessed. For example, factors such as whether the contractor is part of the business organisation of the employer, whether they were paid regular wages, and whether they could refuse work are considered when determining whether someone is an independent contractor or an employee.
In Ontario, for example, independent contractors do not have the same protections as employees under the Ontario Employment Standards Act (ESA). However, independent contractors who act more like employees can seek protection against the loss of employment benefits, such as the entitlement to minimum wage, if they have been misclassified.
In the case of Uber drivers, for instance, some drivers have taken the company to Employment Court and won a declaration that they are employees, not contractors. This means that Uber would be responsible for paying them at least the minimum wage.
Therefore, while businesses may pay independent contractors less than the minimum wage, it is important to carefully assess the working relationship and be aware of the potential for misclassification.
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Paying employees through commission
When paying employees through commission, businesses must ensure compliance with minimum wage laws at the federal, state, and local levels. The federal minimum wage rate is $7.25 per hour, but many states and localities have higher minimum wage rates. For example, Virginia's minimum wage is $12.00 per hour. Employers must pay employees the minimum wage rate of the state in which they are physically working.
To ensure compliance with minimum wage laws, employers can calculate the total amount paid in commissions divided by the total number of hours worked to ensure it equals at least the minimum wage. Additionally, it is considered best practice to have a written commission agreement or plan to avoid confusion and ensure everyone understands how commissions will be paid. This agreement should include any deductions that may be made from an employee's paycheck, such as wage garnishments and payroll taxes, to ensure compliance with state wage laws.
It is important to note that employers cannot unilaterally decide to deduct from an employee's paycheck for failure to return company property without the employee's written authorization. Once an employee has earned commissions by fulfilling all the necessary steps, the employer cannot make changes to the commissions before they are paid out. At that point, the commissions are considered earned wages, and the employee is entitled to payment.
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Hiring seasonal workers
When hiring seasonal workers, it is important to verify their eligibility to work in the country. In the United States, employers can use Form I-9 to check the identities and work authorizations of seasonal workers, just as they would for regular employees. Seasonal workers are entitled to earn at least the minimum wage, which is $7.25 per hour at the federal level, but may be higher depending on state or local laws. For example, some cities and counties have passed "living wage" laws that set a minimum wage for all employers in the area. It is the responsibility of the employer to pay the highest applicable minimum wage, whether it is federal, state, or local.
Additionally, employers must be aware of overtime regulations. Seasonal workers are typically entitled to overtime pay at a rate of one-and-a-half times their regular hourly rate for any hours worked over forty hours per week. Certain states, such as California, have their own overtime rules, so it is important to check the specific regulations in your state.
It is worth noting that employers are not required to provide sick pay, vacation pay, or holiday pay to seasonal workers. However, all employees, including seasonal workers, must be provided with workers' compensation insurance, which covers work-related injuries and lost wages.
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Paying young workers less
In the United States, federal law requires employers to pay all employees a minimum hourly wage, which is currently $7.25 per hour. However, federal law does not require employers to pay independent contractors or outside salespeople the federal minimum wage. Additionally, various minimum wage exceptions apply under specific circumstances. For example, employers can pay a tipped employee not less than $2.13 an hour if that amount plus the tips received equals at least the federal minimum wage.
Businesses can also take advantage of programs that allow for payment of less than the full federal minimum wage, such as the Full-time Student Program. This program is for full-time students employed in retail, service stores, agriculture, or educational institutions. Employers can obtain a certificate from the Department of Labor that allows them to pay students 85% of the minimum wage, with a limit of 20 hours per week when school is in session and 40 hours when it is not.
Another way businesses can get around minimum wage laws is by taking advantage of state-specific laws. While most states have their own minimum wage laws, in some states, employers can pay youth below these rates. Thirty-four states and the District of Columbia have provisions that allow employers to pay minors less than adults in the same roles based on age, student status, or occupation. Twelve states and Puerto Rico mirror the youth exemptions and youth subminimum wages that exist under federal law.
While these practices may be legal, they are controversial. Critics argue that paying young workers less than the minimum wage is discriminatory, exploitative, and harmful to workers of all ages. It can also encourage employers to adopt a high-turnover staffing model and replace adult workers with younger ones to cut costs. Advocates for youth minimum wage argue that it benefits youth unemployment rates, but this has been disputed.
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Paying students less
In the United States, federal law requires employers to pay their employees a minimum hourly wage, which is currently $7.25 per hour. However, businesses may be able to pay students less than the minimum wage by participating in the Full-Time Student Program.
Full-Time Student Program
This program is for full-time students employed in retail or service stores, agriculture, or colleges and universities. To participate, an employer must obtain a certificate from the Department of Labor, which allows the employer to pay a student worker no less than 85% of the minimum wage. The certificate also limits the student's working hours to eight hours per day and no more than 20 hours per week when school is in session and 40 hours when school is out. Once the student graduates or leaves school, they must be paid the full minimum wage.
It is important to note that this program has some limitations, and not all student workers may be eligible. For example, international students at some colleges may not be eligible for the federally subsidized work-study program and may instead receive payment directly from the school, which may be below the minimum wage.
Other Considerations
In addition to the Full-Time Student Program, there may be other ways for businesses to pay students less than the minimum wage. For example, some states have specific minimum wage laws for tipped employees, and federal law allows employers to pay a special hourly rate to tipped workers as long as they earn at least the minimum wage when including tips. Additionally, some states have a lower minimum wage for young workers under the age of 20 during their first 90 consecutive calendar days of employment.
While these strategies may allow businesses to pay students less than the standard minimum wage, it is important to note that wage laws vary by state and even by city and county, so businesses must ensure they are complying with all applicable laws and regulations.
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Frequently asked questions
Businesses are not advised to get around minimum wage laws as it is illegal and unethical. However, certain workers are exempt from minimum wage laws, including independent contractors, seasonal workers, and outside salespeople. Additionally, some workers can be paid a lower minimum wage, including tipped employees, full-time students, and workers with disabilities.
Independent contractors are not considered employees, so they are not covered by minimum wage laws.
Yes, there are special rules for student workers and young workers. Full-time students can be paid 85% of the minimum wage under the Full-time Student Program. Young workers under 20 can be paid a minimum wage of $4.25 per hour for their first 90 days of employment.
Yes, federal law allows employers to pay tipped employees a special hourly rate as long as they earn enough in tips to make at least the minimum wage for each hour worked.
Yes, workers with disabilities may be paid less than the minimum wage under specific programs.
