Do you know about the intricacies of federal and state labor, minimum wage, and overtime laws?
As an accountant, you likely work with small to medium-sized businesses, and an increasing number of businesses are starting to employ remote workers. Your clients need to remain compliant with federal regulations and their remote staff’s state regulations.
Here at Gusto, we equip accountants with the tools they need for success. That’s why we partnered with CPA Academy to present an informative webinar all about federal and state minimum wage, overtime, and labor laws. We hosted our webinar, “The History of Payroll & Benefits: How Did We Get Here?” and you can watch the entire webinar here.
In this article, you’ll learn about federal and state regulations from Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Gusto’s Editor-at-Large. They shared critical insights into the history and evolution of minimum wage, overtime, and child labor laws.
Federal minimum wage 2022
Congress enacted a federal minimum wage in 1938 through the Fair Labor Standard Act. Greg discussed the minimum wage’s increase since 1938 and compared it to the price of gas as a frame of reference:
“Minimum wage started at $0.25 an hour back in 1938, [which was] back when a gallon of gas was a meager $0.10, and now in 2022, [the] minimum wage is $7.25 per hour, and … according to the internet, the average price of gasoline for the United States is $3.31 a gallon.”
– Greg Kyte
Although the federal minimum wage in 2022 is $7.25, individual states enact their own minimum wage standards.
“$7.25 is simply a [minimum for states] because when there’s [a] federal regulation that is passed, typically states can enact their own legislation that needs to be at least as strict as the federal regulation, and that’s the case.”
– Greg Kyte
Two areas with the highest minimum wages include Washington, D.C., with $15.20 per hour, and California. California has more complex rules regarding minimum wage.
“California as a state has a minimum wage, but … there [are] complexities because it’s like, ‘Hey, our minimum wage in the state is $14.00 an hour, but if you’re a small employer, it’s only $13.00 an hour.’ … The California state requirements [are the minimums for] all the municipalities. … City or county [governments can] decide to enact a minimum wage [that’s] higher than the statewide minimum wage.”
– Greg Kyte
California’s minimum wage differs depending on city and county standards. For example, the highest minimum wage in the country is Emeryville, California, at $17.13.
One critical note about meeting minimum wage requirements is that businesses need to abide by the state rules of their remote hires. If a company remotely employs a California resident, they need to abide by California payroll and tax rules:
“If you have a business that’s based in Utah, but you still have some workers who are domiciled and working from home in California, you still have to comply with California regulations for their workers because technically that worker is working in California.”
– Greg Kyte
If your business clients use remote workers, you need to make sure that they comply with individual state requirements regarding payroll and taxes. This is also critical for complying with state overtime standards.
What is time-and-a-half pay?
Time-and-a-half is a form of payment that compensates employees for working over a certain number of hours weekly or daily. The Fair Labor Standards Act of 1938 established time-and-a-half pay rules so that employees working over 40 hours in a given week receive 1.5 times their hourly rate.
Determining overtime payments becomes complicated when it involves salary workers. Some salary workers qualify for overtime while others are exempt:
“The main thing that differentiates exempt employees from non-exempt employees is if they’re working for a salary. … There are salaried employees who are still required to be given time-and-a-half if they work more than 40 hours a week.”
– Greg Kyte
In addition to being salary, two other factors determine whether an employee is exempt from earning overtime pay. Firstly, an employee may be exempt from overtime based on their work:
“The second big thing is you’re salaried, but your work is considered executive or professional in nature. … [For example], we’re hiring a guy right now. … I saw we were paying him a salary for being the maintenance manager, and typically we’re paying those guys in that position an hourly rate. … Even though he was on a salary, he would not be considered an exempt employee because … the work has to be executive or professional in nature, and working as a maintenance guy in a building [is] not considered executive or professional.”
– Greg Kyte
Employees who perform executive or professional work may not qualify for overtime. The final requirement for being exempt from receiving overtime involves salary amount.
“The third thing that has to happen is you have to earn at least $913.00 a week. … You’ve got to make sure people are meeting all three of those. That’s what makes you an exempt employee where overtime rules do not apply.”
– Greg Kyte
In addition to federal overtime, many states have their own time-and-a-half rules. Rather than focusing on the amount of time employees work in a week, state rules involve daily work hours:
“Some states have their own daily overtime rules to where you get time-and-a-half. If you’re in any of these states—Alaska, California, Colorado, Nevada, Oregon, Puerto Rico, or the U.S. Virgin Islands—those states all have some kind of daily overtime rules. [In] most of them, … you get time-and-a-half [when you] work over 10 hours a day. [In] some of them, it’s over eight hours per day.”
– Greg Kyte
Greg noted that calculating daily overtime adds complexity to payroll because businesses need to track daily work rather than just weekly work:
“If you’re doing payroll, you’re just looking at what people are working overall for the pay period. … These require you to go back and recalculate everything on a weekly basis or even on a daily basis to see if there’s some kind of deviation that requires you to pay the time-and-a-half.”
– Greg Kyte
Remaining compliant with federal and state overtime rules can be complex, especially when businesses employ remote workers who live in different states.
U.S. child labor restrictions
In addition to discussing minimum wage and overtime, Greg and Caleb discussed child labor laws and why they came into effect.
In the 1910s, the Supreme Court considered child labor laws unconstitutional. Congress tried to implement the Keating-Owen Child Labor Act of 1916 to prohibit the shipment of goods from businesses that used child labor. The Supreme Court proclaimed that Congress couldn’t regulate commerce, so they declared the act unconstitutional.
Congress eventually outlawed child labor in the Fair Labor Standards Act of 1938, but Congress didn’t illegalize child labor to protect children. They banned child labor so that more adults could find employment after the Great Depression.
“The impetus for the child labor laws was the Great Depression, where you had a bunch of adults who were out of work, and those adults saw little kids getting jobs that they very much wanted, and they were like, ‘Hey, these damn kids are taking our jobs. We need to make sure that doesn’t happen anymore.’”
– Greg Kyte
Although Congress banned child labor, those between 14 and 17 can work with limitations, and children under 14 can work family jobs and farm jobs. Minors who are 14 to 15 years old can work, but the law limits the number of hours they can work:
“If you’re between 14 and 15 … you can work, but it’s complicated. You can’t work more than three hours a day if it’s a school day. You can’t work more than eight hours a day … if you’re out for summer break. [You can’t work beyond] 18 hours per week in a school week [or] 40 hours a week in the summer. … Regardless of the time of year, you can’t work outside of the hours of 7:00 a.m. to 7:00 p.m.”
– Greg Kyte
Those between the ages of 16 and 17 don’t have the same hourly restrictions as 14-15-year-olds. They can work at any time, but they cannot work in an industry considered hazardous, such as manufacturing or mining.
Learn more about the history of wages and labor
The federal minimum wage, overtime, and child labor laws underwent significant changes in the first half of the 20th century. Since Congress passed the Fair Labor Standard Act of 1938, many states have also implemented their own minimum wage and overtime regulations. With states having their own labor laws, businesses that hire remote employees must comply with federal and state regulations.
If you’re ready to learn more about the history and evolution of taxes, read Part One and Part Three of this webinar article series. You can also watch the entire webinar here.
If you’re an accountant who advises businesses in people operations such as payroll and benefits, you need the best tools to help businesses stay compliant with federal and state regulations. Fortunately, you can simplify your clients’ payroll and help them remain compliant by partnering with Gusto. When you become a Gusto partner, you get exclusive access to tools and resources to support your clients into the future. Streamline payroll and benefits, and start advising your clients in valuable new ways. Join Gusto’s Partner Program today.
