Although “The Volunteer State” follows federal standards for most areas of employment, understanding the specifics of the Tennessee minimum wage and the state’s additional wage laws is crucial for employers in the state. This includes guidelines for overtime pay, youth employment, and tipped employees.
In today’s post, we will share everything you need to know about the Tennessee minimum wage, including rates, exemptions and best practices to ensure compliance with federal and state wage laws.
- U.S. Minimum Wage Tiers
- Federal Minimum Wage: Timeline
- The Tennessee Minimum Wage
- Are Any Employees Exempt from the Tennessee Minimum Wage?
- What Other Tennessee Wage Laws Are There?
- Who Enforces Tennessee Minimum Wage Laws?
- Best Practices for Employer Wage Law Compliance
- Centralize payroll management and get ahead🚀
US Minimum Wage Tiers
The minimum wage in the United States is a complex system with multiple tiers, each set by a different level of government: federal, state, and municipal. This progressive approach aims to ensure that workers across the country receive a fair wage in line with local economic conditions.
Federal Minimum Wage
As the baseline, the federal minimum wage is the lowest hourly rate that employers are legally allowed to pay their employees. It is set by the Fair Labor Standards Act (FLSA) and was last raised in 2009 to $7.25 per hour. This rate, which ensures that employers comply with a basic level of compensation regardless of their location or industry, is significantly lower than the median hourly wage of all workers in the United States ($35.00 per hour).
State Minimum Wages
Recognizing regional variations in state economies and the cost of living, there are now many state minimum wage laws that set the threshold higher than the federal rate. These state-level mandates ensure that workers in higher-cost areas receive a wage that reflects their cost of living. For example, the minimum wage is $12.30 per hour in Missouri, $12.00 per hour in Hawaii, and $16.28 per hour in Washington State (the highest rate in the country).
Municipal Minimum Wages
To further address regional economic realities, some cities and counties have implemented local minimum wage mandates that are higher than both federal and state rates. This approach ensures that workers in urban centers, where the cost of living is often higher, receive a wage that reflects their specific environment.
Finally, in addition to regional differences, the minimum wage can also vary based on industry. For example, the minimum wage for tipped employees in the service industry is typically lower than the minimum wage for non-tipped employees. This is because many states expect tipped employees to receive a significant portion of their income from tips. However, in some states, employers are required to make up the difference if the employee’s hourly wage plus tips does not equal at least the minimum wage.
Federal Minimum Wage: Timeline
Before we explore the Tennessee minimum wage, let’s take a look at a timeline of the federal minimum wage to help us understand its evolution and impact on state wage laws.
Key Milestones in the History of the Federal Minimum Wage
- 1938. The FLSA establishes the first federal minimum wage of $0.25 per hour. This provides workers with a baseline income and lays the groundwork for future labor standards.
- 1950. The federal minimum wage increases to $0.75 per hour, expanding coverage to air transport industry workers. This increase is a reflection of post-war economic growth and an improvement in living standards.
- 1966. The federal minimum wage increases to $1.40 per hour. This increase ensures wages keep up with productivity and the cost of living, reducing poverty significantly. Coverage is extended to public schools, nursing homes, laundries, and the construction industry
- 1981. The federal minimum increases to $3.35 per hour and remains unchanged for almost a decade. This wage stagnation leads to an increase in income inequality.
- 1989. Changes to the law require businesses that make $500,000 or more per year to follow minimum wage rules, and the federal minimum wage is increased to $3.80 per hour.
- 1997. The federal minimum wage increases to $5.15 per hour during the Clinton administration. This raise is part of a series of increases aimed at boosting the income of low-wage workers. However, even though it provides a significant boost in nominal wages, it still lags behind inflation and cost of living increases.
- 2007-2009. The federal minimum wage increases in three stages to $7.25 per hour, where it has remained until now despite rising living costs. This is the longest period in U.S. history without an increase, significantly eroding the real value of the minimum wage and leading to financial insecurity and increased reliance on social safety nets. There are currently no plans to increase the federal minimum wage.
The Tennessee Minimum Wage
In Tennessee, the minimum wage is set at the federal rate of $7.25 per hour, as the state does not have its own minimum wage law. This means that most workers in Tennessee are entitled to this federal minimum wage.
This reliance on the federal minimum wage ties directly into the Fair Labor Standards Act (FLSA), which is the overarching federal legislation that establishes the minimum wage, overtime pay, recordkeeping, and child labor standards across the United States. The FLSA ensures that workers in states like Tennessee, which do not have their own minimum wage laws, are still protected by a baseline wage standard.
What Is the Fair Labor Standards Act?
So, what is the FLSA exactly?
The Fair Labor Standards Act (FLSA) of 1938 establishes a number of employee rights and employer obligations in the US. This includes the right to a minimum wage, overtime pay regulations, and employer recordkeeping requirements. It also includes limits to working hours limits and child labor standards. The act applies to all employees working in the private sector and federal, state, and local governments. Failure to comply with any aspect of the FLSA can result in penalties, litigation, and reputational damage.
The FLSA applies to all non-exempt employees.
What Is a Non-Exempt Employee?
One important thing to consider in terms of the Tennessee minimum wage is the employment classification of your workers. In other words, whether your employees are classified as exempt or non-exempt from the provisions of the Fair Labor Standards Act.
But what do we mean by this?
To determine if you should classify your employees as exempt or non-exempt, you need to consider the following:
- Salary level. Firstly, are you paying the employee more than $43,888 per year?
- Salary basis. Secondly, do you offer them a guaranteed minimum compensation amount, regardless of the hours they work?
- Duties. Finally, have you contracted them to perform an exempt job duty? (Professional duties that require specialized education; executive duties such as supervising a team; or administrative duties that require the use of discretion and judgment)
If an employee is exempt, they are not subject to the minimum wage and overtime provisions of the FLSA, provided they meet all the criteria of the FSLA. This is because they are typically paid a salary rather than an hourly wage. However, in terms of Tennessee minimum wage laws, you must still ensure they receive a salary that averages out to at least the federal minimum wage of $7.25 per hour for the hours they work.
If an employee is non-exempt (usually applies to hourly employees), you must pay them at least the federal minimum wage of $7.25 per hour (the Tennessee minimum wage). Non-exempt employees are also eligible for overtime pay at 1.5 times their regular rate for any hours worked over 40 in a workweek (more on this below).
Are Any Employees Exempt from the Tennessee Minimum Wage?
Since Tennessee does not have a state-specific minimum wage and follows the federal minimum wage of $7.25 per hour, the exemptions to the Tennessee minimum wage are essentially the same as those outlined under federal law.
Here’s an overview of these exemptions:
- Tipped employees. Firstly, you can pay tipped employees a reduced rate of $2.13 per hour if their tips bring their total earnings to at least $7.25 per hour. If they don’t, then you must cover the tip deficit.
- Student workers. Secondly, you can pay full-time college or high school students 85% of the Tennessee minimum wage. However, students must be enrolled in a work-study program or work 20 hours (or less) per week.
- Young workers. In addition, you can pay employees under 20 a reduced rate of $4.25 per hour during the first 90 days of employment. After 90 days, you must pay them the full Tennessee minimum wage.
- Employees with disabilities. Finally, you can pay employees with a disability a lower rate provided you obtain a certificate from the U.S. Department of Labor. This special permission allows employers to pay wages based on the productivity of the worker, which might be less than the Tennessee minimum wage.
What Other Tennessee Wage Laws Are There?
Aside from the Tennessee minimum wage (federal rate), the state has a number of additional wage laws that employers need to understand as these can have an impact on an employee’s wages.
Let’s explore these additional Tennessee wage laws in a bit more detail so you can make sure your employee handbook meets all requirements.
Tennessee Wage and Hour Act
The Tennessee Wage Regulations Act, enforced by the Tennessee Department of Labor and Workforce Development, protects wage earners from unfair practices regarding pay, breaks, and meal periods.
Specifically, according to the Tennessee Wage Regulations Act, employers in the state must:
- Provide unpaid meal breaks. Firstly, employers must provide a 30-minute unpaid meal or rest period to employees scheduled to work six consecutive hours, except in certain workplace environments where there is ample opportunity for rest or breaks.
- Pay wages promptly. Secondly, employers must pay employees all wages earned by the next regular payday following the end of the pay period.
- Issue final paychecks. In addition, employers must pay employees who leave or are discharged from employment all wages or salary earned no later than the next regular payday or within 21 days of termination, whichever comes later.
- Prevent unauthorized deductions. Finally, employers cannot make deductions from an employee’s paycheck without the employee’s consent unless required by law.
Tennessee Lawful Employment Act (TLEA)
The Tennessee Lawful Employment Act (TLEA) requires all employers in Tennessee to demonstrate that they are hiring and maintaining a legal workforce. In other words, employers must verify the legal working status of all employees.
Key requirements:
- E-Verify system. As of January 1, 2023, if you are a private employer with 35 or more full-time equivalent employees under the same FEIN, you must use the federal E-Verify employment verification process. This applies to employees working in or outside the state of Tennessee.
- Document retention. Employers must retain records of the verification process for each employee. This includes maintaining E-Verify case results. Maintain these records for at least three years after an employee’s departure.
- Affidavit submission. In certain cases, employers may need to submit an affidavit confirming that they have verified the employment eligibility of their workforce.
Visit the Tennessee Department of Labor and Workforce Development’s employment verification page for more information.
Illegal Alien Act
Employers cannot knowingly employ, recruit, or refer for a fee for employment of an illegal alien. Employers must use the federal E-Verify system (above) or retain documentation to verify the work authorization status of all new hires.
Prevailing Wage Act
The Prevailing Wage Act protects wage earners from unfair practices regarding pay on state-funded highway construction projects. The Act also requires the Department of Labor and Workforce Development to conduct a survey to determine wage rates for various job classifications for state-funded highway construction projects.
Child Labor Act
Tennessee’s Child Labor Law includes protections for minors between 14 and 17 years of age. The purpose of this law is to ensure that the work being performed is safe and does not jeopardize the health, well-being, or educational opportunities of these young people.
Specifically, Tennessee’s Child Labor Act:
- Prohibits the employment of minors in certain occupations and in working conditions that may be hazardous.
- Restricts when a minor can work during a school day and the number of hours they are allowed to work.
- Allows exceptions to these laws when the minor is enrolled in a Work Based Learning (WBL) Program.
Workers’ Compensation
Tennessee requires employers to carry workers’ compensation insurance to cover medical expenses and lost wages for employees who are injured on the job. This ensures that employees receive necessary medical care and compensation for lost income due to workplace injuries.
Employment Recordkeeping
According to Tennessee law, employers must maintain accurate records of all hours worked and wages paid to employees. These records must be retained for a minimum of three years.
These records must include the following:
- Employee identification. Names, addresses, social security numbers, and occupations.
- Work schedules. Days and hours worked each day and week.
- Pay records. Total daily or weekly earnings, regular and overtime pay, deductions, and net wages.
- Time records. Time records must detail the starting and stopping times of work periods.
Wage Poster
The Fair Labor Standards Act and Tennessee labor law require all employers in Tennessee to visibly display an approved Tennessee minimum wage poster, and other Tennessee and federal labor law posters, to ensure that all employees are aware of federal and Tennessee labor law and overtime regulations. Failure to display a Tennessee wage law poster in the workplace can result in severe fines.
Tennessee Equal Pay Act
Finally, the Tennessee Equal Pay Act requires employers to provide equal pay for men and women performing comparable work. Specifically, this means that employers cannot discriminate between employees on the basis of sex by paying different wage rates for jobs that require comparable skill, effort, and responsibility, and that are performed under similar working conditions. This aligns with the requirements of the federal Equal Pay Act.
Who Enforces Tennessee Minimum Wage Laws?
The Tennessee Department of Labor and Workforce Development oversees the regulation of all wage laws in the state, including enforcing the Tennessee Wage and Hour Act and the Tennessee Child Labor Act.
In addition, since Tennessee adheres to the federal minimum wage and does not have a state-specific minimum wage law, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) enforces the Tennessee minimum wage and all additional wage laws in the state.
Finally, the Tennessee Labor Standards Unit enforces 6 labor laws in the state.
Specifically, this includes:
- The Child Labor Act
- The Wage Regulations Act
- The Prevailing Wage Act
- The Illegal Alien Act
- The Tennessee Lawful Employment Act
- The Non-Smoker Protection Act
Every year the unit conducts child-labor and non-smoker protection inspections, processes claims for unpaid wages, and performs on-site prevailing wage inspections on state-funded highway construction projects to ensure workers are correctly paid. The unit also receives complaints from local, state and federal agencies if there are allegations of unlawful hiring practices related to illegal aliens and whether workers are lawfully authorized to work.
Best Practices for Employer Wage Law Compliance
And that’s pretty much everything you need to know about the Tennessee minimum wage and the state’s additional wage laws. All that’s left now is to make sure that your Tennessee business meets the legal requirements of these laws.
With this in mind, we’ve put together a handy list of essential tips and best practices to help you protect your business from potential non-compliance fines and penalties:
- Monitor working hours. Firstly, track and calculate employee working hours and make sure you pay non-exempt employees overtime pay if they work beyond 40 hours in a week. Factorial’s time tracking feature enables real-time monitoring of working hours, including overtime. This allows you to maintain and generate accurate records and reports and identify and address any issues promptly, ensuring compliance with overtime and time-tracking requirements.
- Maintain detailed records. Secondly, keep comprehensive records of all hours worked, wages paid, and deductions for at least three years. Factorial’s HRIS automates recordkeeping, storing all data in a centralized digital format for easy access and compliance with record retention laws.
- Schedule employee breaks properly. In addition, make sure you provide the required 30-minute unpaid meal break for employees working six consecutive hours. Factorial’s scheduling software manages and schedules breaks effectively, ensuring compliance with Tennessee’s break regulations.
- Implement an effective payroll system. Finally, ensure compliance with the Tennessee minimum wage by regularly updating your payroll systems. Factorial’s payroll software automatically updates wage rates, ensuring compliance and reducing underpayment risks. What’s more, our payroll software integrates seamlessly with our time-tracking and scheduling features, making it easy to monitor employee hours, manage overtime, and schedule required breaks. This comprehensive approach helps you maintain accurate records and adhere to all Tennessee wage laws, protecting your business from legal issues and ensuring fair treatment of your employees.
