Ch3. Wages and Minimum Wage — Legal Definitions and Worker Rights

What Are Wages?

Wages under the FLSA: remuneration for employment, including the cash value of any remuneration paid in any medium other than cash. The name attached to a payment does not matter — if it is compensation for work, it is a wage.

Items that are wages: base salary, shift differentials, non-discretionary bonuses, piece-rate payments, the cash value of meals or lodging (when required), commission payments

Items that are NOT wages: expense reimbursements, gifts, discretionary bonuses (truly discretionary and not pursuant to a prior promise), wellness benefits, and most fringe benefits

Regular Rate of Pay

Regular rate: the actual rate at which an employee is paid for normal, non-overtime hours. Under the FLSA, overtime must be calculated at 1.5 times the regular rate.

The regular rate is NOT simply the hourly wage — it must include certain additional compensation.

Items Included in the Regular Rate

Item	Included?
Hourly wage	Yes
Piece-rate earnings	Yes
Non-discretionary bonuses	Yes
Shift differentials	Yes
Production incentive bonuses	Yes
Retroactive pay increases	Yes

Items Excluded from the Regular Rate

Item	Included?
Overtime premiums (1.5× for hours over 40)	No
Truly discretionary bonuses	No
Gifts for special occasions	No
Vacation, sick, holiday pay	No
Employee benefit plan contributions	No

Average Rate (Weighted Average)

Average rate: where an employee works at two or more rates during the same workweek, overtime may be calculated by taking the weighted average of those rates across all hours worked.

Weighted Average Rate = Total Straight-Time Earnings ÷ Total Hours Worked

Uses:

Severance calculations
Workers’ compensation benefit calculations
Unemployment insurance benefit determinations

Minimum floor: if the computed average rate falls below the applicable minimum wage, the minimum wage applies.

Minimum Wage

FLSA Minimum Wage: the federal floor for hourly wages. Employers who fail to meet it are subject to back-pay liability.

Current Minimum Wage (US)

Federal: $7.25/hour (unchanged since 2009)
State and local laws often set higher rates — employers must pay whichever rate is highest.
Many states now exceed $15/hour; several cities (Seattle, San Francisco, New York City) set minimums above$ 17–$18/hour.

Monthly Wage Calculation

Monthly wage = Hourly minimum wage × (Average weekly hours × 52 ÷ 12)

Payments Excluded from Minimum Wage Calculation

The following may NOT be credited toward satisfying the minimum wage:

Overtime premiums
Purely discretionary bonuses
Reimbursement for actual business expenses

Tip credit: in tip-credit states, employers may pay tipped employees a lower cash wage (federal floor: $2.13/hour) provided tips bring total hourly compensation to at least the minimum wage.

Penalties

Failure to pay minimum wage: back wages + equal amount as liquidated damages (FLSA § 16(b)). Willful violations may also result in criminal fines.

Four Principles of Lawful Wage Payment

FLSA and applicable state law:

Principle	Content
Payment in legal currency	Wages must be paid in US dollars or their equivalent. Payment in goods or scrip is prohibited (with narrow exceptions).
Payment directly to the employee	Wages must be paid to the employee, not withheld to pay a third-party debt (except court-ordered garnishments).
Payment in full — no unauthorized deductions	Employers may not make deductions that bring pay below minimum wage (except taxes, court orders, and agreed benefits).
Regular pay schedule	Employers must pay wages on a consistent payday; most states require semi-monthly or bi-weekly payment.

Wage Theft

Wage theft: the failure to pay all wages legally owed to an employee by the due date.

Remedies

Option 1: Department of Labor (DOL) Wage and Hour Division complaint

Free, straightforward process
Investigation, conciliation, or referral for litigation
www.dol.gov/agencies/whd

Option 2: State Labor Agency complaint

Many states have faster or broader wage recovery mechanisms
Some states allow recovery of treble damages for willful violations

Option 3: Private Civil Lawsuit

Claim under FLSA § 16(b): back wages + liquidated damages + attorney’s fees
Small Claims Court: available in many states for claims under $10,000–$ 25,000

Option 4: Wage Claim through State Unemployment Agency

Some states allow wage lien or assignment processes for unpaid final wages

Statute of Limitations

Wage claims under the FLSA: 2 years (3 years for willful violations)

State wage claims: varies — typically 2–6 years (check state law)

Regular Rate vs. Average Rate Comparison

Item	Regular Rate	Average Rate
Definition	Actual rate for normal hours	Total earnings ÷ total hours (multi-rate week)
Use	Overtime calculation base	Multi-rate overtime; workers’ comp
Characteristic	Established in advance; fixed	Calculated after the fact
Variability	Low	Higher — reflects all pay components

Learning Checklist

I can explain the legal definition of wages and identify payments that are not wages
I can state the three requirements for a payment to be included in the regular rate
I can calculate the weighted average rate for a multi-rate workweek
I can identify the four principles of lawful wage payment
I can explain four remedies available for wage theft

Core Concept Cards

Elements of a Valid Contract ★★★★ : Offer, acceptance, consideration, capacity, and legality. All five must be present; failing any element voids or makes the contract voidable.

Defects in Assent — Mistake, Fraud, Duress ★★★★★ : Mutual mistake: contract may be voidable if both parties were mistaken about a material fact. Fraud or duress: contract is voidable by the aggrieved party. Statute of limitations: varies by state (typically 4–6 years for contract claims).

Void vs. Voidable Contracts ★★★★★ : Void: no legal effect from inception; neither party can enforce. Voidable: valid until the aggrieved party elects to rescind; ratification is possible. Memory tip: Void = never valid. Voidable = valid until rescinded.

Statute of Limitations (general) ★★★★ : Contract claims (written): 4–6 years. Wage claims: 2–3 years. Tort claims: typically 2–3 years. Personal injury: 2–3 years. Statutes of limitations may be tolled by discovery rules or fraudulent concealment.

Practice Quiz

Q. What is the core difference between a void and a voidable contract?

Void = no legal effect from the start; neither party can enforce it. Voidable = initially valid; only the aggrieved party can elect to rescind, but the contract remains enforceable until that election.

Q. When is a mistake NOT a basis to void a contract?

A unilateral mistake (only one party was mistaken) generally does not make the contract voidable unless the other party knew of the mistake or the mistake was so gross that enforcement would be unconscionable.

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