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Wednesday, May 27, 2015

How Wages Work (Part 1)

How Wages Work

An exert from

Very few of us work for free. But not everyone gets paid in the same way. You might be paid hourly, on a salary, by commission or work mostly for tips. Many different federal and state laws govern how much people can be paid and when. These laws also dictate how much we have to pay for taxes and whether certain jobs, like ones that require overtime or dangerous work, should pay more.

In this article, we’ll explore all aspects of wages -- from the legal side, to the types of wages, to taxes, to how much money you’ll finally take home. Because there are so many different state laws concerning wages, we’ll focus mainly on federal law. It’s always a good idea to check with a labor lawyer or your state’s Department of Labor to learn more about laws that may apply to your state.

The Fair Labor Standards Act (FLSA) is the most important law covering wages. Originally passed in 1938 but amended many times since, the FLSA sets standards for minimum wage and
overtime pay, affecting most private and public employees. A nice feature of this law is that wherever it may overlap with state law, the law dictating higher standards is obeyed. This feature has become especially important with minimum wage, allowing individual states, cities and counties to pass their own minimum wages laws that are higher than the federal minimum wage.  For 2015, the federal minimum wage is $7.25 per hour; however Montana State has a higher minimum hourly wage of $8.05 which must be observed. 

The Act applies to all employees involved in interstate commerce, a definition that is generally very broad -- a business that receives telephone calls or mail from other states may be deemed to be engaging in interstate commerce. Firms that do more than $500,000 in business annually are usually covered under ­the act, and the following businesses are covered no matter their volume of business:

  • Government agencies
  • Hospitals
  • Institutions that take care of the sick, elderly or disabled
  • Schools

Domestic service workers are covered if they earn at least $1,400 in wages from an employer in a year or if they work more than eight hours a week. 

Child Labor and Hazardous Work

The Act requires employers to pay at least the federal minimum wage and 1.5 times the regular rate of pay for overtime calculated on a weekly basis. It also contains provisions regarding which jobs minors can do and the hours they can work. Children under 16 years of age are allowed to do non-agricultural work, but children under 18 years of age are prohibited from doing work that’s considered “too dangerous” - meaning the work could potentially present a health or safety hazard. According to the U.S. Department of Labor, some examples of hazardous work are:

  • working with or around explosives
  • working with heavy equipment, such as power-driven saws, metal working machinery and manufacturing equipment
  • logging and sawmill work
  • working with radioactive materials
  • demolition work
  • roofing or other intense height-related work
  • operating motor vehicles

The FLSA allows children under age 16 to do agricultural work, but only during non-school hours.

The FLSA includes a prohibition against the shipment of goods produced in violation of minimum wage or overtime regulations or involving child labor. It also prohibits gender-based discrimination.

Contrary to what one might think, federal law does not require employers to give you paid vacation or sick days, overtime for working on holidays, raises, benefits of any type or a reason for termination if you’re fired. However, most employees have come to expect these perks (among others), and companies generally offer them to maintain morale among employees and to remain competitive when searching for talent.