When it comes to minimum wage compliance, HR professionals have a lot more to consider than just federal and state thresholds. For example, an employer’s jurisdiction may permit a lower minimum wage rate for tipped employees. And there is a federal law that allows employers to pay lower wages to certain workers with disabilities when a certificate is approved, an allowance some lawmakers are seeking to undo.

On the flip side, an employer could be obligated to pay higher rates if employees are covered by certain local ordinances, industry rules, or prevailing wage rules.

Compensation questions are among the top issues fielded by the SHRM HR Knowledge Advisors, who offer resources to assist SHRM members with their HR-related inquiries. 

“We are often asked for multistate resources on state and local minimum wages, as well as prevailing wages,” says Amber Clayton, SHRM- SCP, senior director of SHRM HR Knowledge Center operations. “In addition, we are often asked about which wage and hour laws apply to specific employers.”

Here are some tips to help employers cut through the confusion.

Member resource: Multistate Laws Comparison Tool

Review All Rules That Apply

Employers should identify all wage statutes that apply to workers. “This analysis should be conducted at the outset of employment and should be re-evaluated on a regular basis,” says Patrick Dalin, an attorney with Fisher Phillips in Philadelphia.

These rules may include:

• Federal minimum wage: Under the Fair Labor Standards Act (FLSA), nonexempt employees must be paid at least $7.25 an hour.

• State and local rates: These may be higher than federal requirements.

• Industry-specific rates: For example, California recently set a higher minimum wage for fast-food workers.

• Requirements for government contractors: President Joe Biden signed an executive order in 2021 establishing minimum wages for federal contract workers.

The 9th U.S. Circuit Court of Appeals had vacated this requirement as of press time.

• Prevailing wage rules: Federal and state regulations may require employers to pay workers certain minimum wages and benefits when they are working on public projects. For example, the Davis-Bacon Act applies to workers on certain federally funded or assisted contracts. If prevailing wages apply, the employer will need to determine which job category each worker falls into because the applicable wage rate typically varies per job category and changes over time.

So, which rate applies when an employee is covered by multiple minimum wage laws? “Typically, the employer has to pay the highest rate that applies to the worker,” Dalin explains. “Therefore, making an accurate assessment of which laws apply is critical.”

Related: 2025 State Minimum Wage Charts

Understand Subminimum Wage Rules

In some circumstances, employers can pay less than the standard federal or state minimum wage. For example:

• An employer may be able to pay tipped workers, such as servers and bartenders, as little as $2.13 an hour if they make at least the standard minimum wage with tips added. The idea is that these employees generally make most of their income through gratuities. However, a growing number of states and localities have banned or are gradually abolishing what’s often called the “tip credit.”

• The FLSA allows employers to seek a 14(c) certificate to pay subminimum wages to certain workers whose earning capacity is limited by physical or mental disabilities. Supporters say this practice enables more people with disabilities to find employment, while opponents argue that it creates barriers to full workplace inclusion.

Additional subminimum wage rules may apply to student learners (who are at least 16 years old, employed part time, and enrolled in an eligible program), apprentices, and certain seasonal workers.

Notably, these laws have stringent requirements, and states may have higher wage thresholds than federal law or may altogether ban subminimum wages.

Avoid These Common Mistakes

Common mistakes for employers to avoid include:

• Misclassifying employees as exempt. “One of the most common mistakes is misclassifying an employee as exempt and not paying them the minimum wage in the first place,” explains Sarah Wieselthier, an attorney with Fisher Phillips in Berkeley Heights, N.J. The FLSA and many state laws set specific criteria for exemptions, and employers should consider routinely performing audits to determine whether exempt employees are properly classified and if any changes should be made.

• Failing to account for employee expenses. When assessing minimum or prevailing wage compliance, Dalin says that employers should account for expenses, such as mileage and board, that employees incur while performing their work duties. Employee-paid expenses can drive their hourly rate down below the required minimum or prevailing wage.

• Failing to ensure timekeeping and recordkeeping practices are accurate and up-to-date. Even if employers are paying an adequate hourly rate for employees’ work time that is captured in their records, Dalin says, if an employee has additional work time that was not accurately captured, this could potentially drive their true hourly rate below the required amount.

“Whether you have a team of HR professionals or are in an HR department of one, seek guidance if you are uncertain how to comply with the laws,” Clayton says. “Don’t go it alone.” 

Lisa Nagele-Piazza, J.D., SHRM-SCP, is legal content counsel for Fisher Phillips in Washington, D.C.