Minimum Wage Explained: Federal, State, Tipped, and the Real Rules

$By Grace Lambert, Careers & Pay Editor · Published 2026-03-03 · Updated 2026-06-26 · Reviewed by Thomas Reid

Minimum Wage Is a Stack of Overlapping Laws

There is no single minimum wage in the United States — there is a stack of federal, state, and local minimums, and the highest one that applies to you is the one you're entitled to. The federal floor set by the FLSA is $7.25 per hour and has not changed since 2009. But most states, and a growing number of cities, mandate higher rates, some more than double the federal figure.

This layering is the single most misunderstood part of the topic. A worker in a city with a $17 local minimum is owed $17, not $7.25, even though the federal number is lower. Employers must pay the most generous applicable standard, and where a city ordinance exceeds the state rate, the city rate governs.

The Tipped Minimum Wage and the Tip Credit

Tipped workers operate under a separate and frequently abused system. Federal law allows employers to pay a cash wage as low as $2.13 per hour and count tips toward the minimum through a 'tip credit' — but only if the employee's tips bring total earnings to at least the full minimum wage. If tips fall short, the employer must make up the difference. Full stop.

States vary dramatically here. Several states (including California, Washington, and others) ban the tip credit entirely and require the full minimum wage before tips. Others set a higher tipped cash minimum than the federal $2.13. Tipped workers should track their hourly total across each shift and each pay period to ensure the make-up rule is actually being honored.

Note: The '80/20' rule limits how much non-tipped side work (rolling silverware, cleaning) a tipped employee can do while still being paid the tipped rate. Excessive non-tipped duties can require the full minimum wage for that time.

Who Is and Isn't Covered

Minimum wage coverage is broad but not universal. Certain categories have distinct rules: full-time students and student-learners can sometimes be paid a subminimum under special certificates; some workers with disabilities historically fell under Section 14(c) certificates (now being phased out in many states); and a youth minimum wage of $4.25 applies to workers under 20 for their first 90 consecutive calendar days.

Independent contractors are not covered at all, because minimum wage law applies to employees. This is precisely why worker misclassification — labeling an employee a contractor — is such a serious violation: it strips minimum wage and overtime protections simultaneously.

Minimum Wage Explained — practical detail — Salaryitis

Why the Federal Rate Feels Frozen

Because the federal minimum has been $7.25 since 2009, inflation has steadily eroded its real value — a dollar in 2009 buys considerably less today, so the same nominal wage represents a shrinking standard of living. This erosion is the engine behind the wave of state and city increases and the spread of automatic indexing.

A growing number of jurisdictions now tie their minimum wage to a cost-of-living index, so it rises automatically each year without new legislation. Workers in those areas should expect a January bump and confirm their employer applied it — a missed indexed increase is a quiet but real underpayment.

How to Confirm You're Being Paid Correctly

Identify all three applicable rates: federal, your state, and your city or county.
Your entitlement is the highest of the three.
If tipped, add up your cash wage plus tips per pay period and confirm it meets or exceeds the full applicable minimum.
Watch for automatic annual indexing in your area and verify the new rate appears on your January stubs.
If underpaid, document your hours and rate and contact your state labor department or the federal Wage and Hour Division — back wages can be recovered.

Level	Who sets it	Rule that applies
Federal	Congress	$7.25 baseline
State	State legislature	Higher of state or federal
City / county	Local government	Often highest of all
Tipped	Federal + state	Lower base + tip credit rules

Minimum wage layers in the U.S.

Key takeaways

There is no single minimum wage — you're owed the highest of the applicable federal, state, and city rates.
The federal minimum has been $7.25 since 2009; most states and many cities are higher.
Tipped workers must reach the full minimum after tips; if not, the employer must make up the difference.
Some states ban the tip credit and require the full minimum before tips.
Independent contractors aren't covered, which is why misclassification is a serious violation.

Frequently asked questions

What is the minimum wage where I work?

It's the highest of the federal ($7.25), your state, and your city or county minimum. Many states and cities set rates well above the federal floor, and where they overlap the most generous applies.

Can I be paid $2.13 an hour as a tipped worker?

Only in states that permit the full federal tip credit, and only if your tips bring your total to at least the full minimum wage. If they don't, your employer must make up the difference. Several states ban the tip credit entirely.

Why hasn't the federal minimum wage increased?

The federal minimum has remained $7.25 since 2009 because raising it requires an act of Congress. In the absence of federal action, states and cities have raised their own rates, many now indexed to inflation.

Are salaried employees covered by minimum wage?

Yes, effectively — their salary divided by hours worked cannot fall below the applicable minimum, and non-exempt salaried workers are also owed overtime. Only true independent contractors fall outside minimum wage law.

What should I do if I'm paid below minimum wage?

Document your hours and pay, raise it with your employer in writing, and if unresolved, file a complaint with your state labor agency or the federal Wage and Hour Division. Back wages can be recovered.