As we progress through 2025, changes to the minimum wage landscape are an essential aspect of the ongoing conversation about labor rights, economic disparity, and the rising cost of living. While the federal minimum wage remains at $7.25 per hour, many states, cities, and localities have independently increased their wage rates to better align with current economic conditions.
Additionally, tipped wages, which often see a different set of rules, have also been revised across various states. This article will provide a detailed overview of the current federal and state minimum wage updates, the intricacies of tipped wages, and the eligibility criteria for minimum wage earners.
Federal Minimum Wage: Overview and Historical Context
The federal minimum wage in the United States is the wage floor set by the federal government, which all covered employers must adhere to for employees engaged in interstate commerce or employed by federal, state, or local governments. The current federal minimum wage rate remains at $7.25 per hour, unchanged since 2009.
The Fair Labor Standards Act (FLSA) established the federal minimum wage, and the rate has been periodically updated throughout history, with the last major adjustment occurring in 2007 under the George W. Bush administration. While inflation and the cost of living have continued to rise over the years, Congress has struggled to pass any new legislation to increase the federal wage rate. Despite periodic attempts, a hike to the federal minimum wage is yet to materialize.
State-Specific Minimum Wage Increases: A Shift Toward Higher Wages
In contrast to the federal government’s standstill, several states, cities, and local jurisdictions have taken the matter into their own hands and instituted higher minimum wage rates to keep up with inflation and rising living costs. By 2025, more than 20 states have raised their minimum wages, with certain areas pushing toward $15 or higher per hour.
Key 2025 State Updates:
California
As of January 1, 2025, California’s minimum wage increases to $16.50 per hour for employers with 26 or more employees. For smaller employers, the rate is slightly lower at $15.50. This rate applies to most workers in the state.
California has also eliminated the lower wages for tipped workers, meaning tipped employees must receive the full minimum wage, with tips acting as a bonus on top of their earnings.
Florida
Florida has been gradually increasing its minimum wage, and in 2025, the state will reach $14.00 per hour as part of its plan to eventually hit $15.00 per hour by 2026.
The state also has specific provisions for tipped employees, where the hourly rate for tipped workers will rise to $6.98.
South Dakota
Starting January 1, 2025, South Dakota will see a bump in the minimum wage to $11.50 per hour, with tipped workers receiving a minimum of $5.75 per hour in cash wages, provided tips make up the difference to meet the full minimum wage.
Michigan
Michigan’s minimum wage will increase to $12.48 per hour by February 21, 2025, as part of the state’s gradual increase that aims to reach $15.00 by 2030. Tipped workers in Michigan will see their hourly cash wage rise to $5.99.
Virginia
Virginia has passed legislation to gradually raise its minimum wage, with the $15.00 per hour rate coming into effect by January 2026. For now, the minimum wage stands at $12.00 per hour in 2025, and tipped workers will see their minimum wage rise accordingly.
Tipped Wage Rates: Changes and Variations Across States
Tipped employees, such as waitstaff, bartenders, and other service industry workers, are subject to unique minimum wage rules. Tipped workers typically receive a lower cash wage than the standard minimum wage, with the expectation that tips will make up the difference. Under the federal law, tipped employees are required to receive at least $2.13 per hour in direct wages, with tips bringing their total compensation up to the federal minimum wage of $7.25 per hour. However, if tips do not bring the worker’s total to at least the federal minimum, employers are required to make up the difference.
State-Specific Tipped Wage Rules:
California: California is one of the few states that requires tipped employees to receive the full state minimum wage, which is $16.50 as of 2025. There is no tip credit allowed in the state, meaning employers cannot pay less than the full state minimum wage to employees who receive tips.
Minnesota: Similarly, Minnesota requires employers to pay tipped employees at least the full minimum wage of $11.13 per hour, and no tip credit is allowed. This law has made Minnesota one of the leading states in terms of worker protections for tipped employees.
South Carolina: South Carolina still follows the federal model, where the tipped minimum wage is set at $2.13 per hour, and tips are expected to make up the difference to reach the federal minimum wage of $7.25 per hour.
New York City: New York City follows a tiered approach, where the minimum wage for tipped workers ranges from $15.00 to $17.00 per hour, depending on the industry and employer size. Here, the tip credit is allowed, meaning employers can pay a portion of the employee’s wage as tips and the rest as the employer’s direct wage.
Eligibility Criteria for Minimum Wage Workers
The eligibility for minimum wage can vary depending on the employee’s role, age, and industry. Under the Fair Labor Standards Act (FLSA), workers in covered jobs are entitled to minimum wage protections, but there are certain exemptions and special cases:
1. Tipped Employees:
As mentioned, tipped employees are paid a base rate lower than the regular minimum wage, with the expectation that tips will make up the difference. However, employers are required to ensure that employees’ total earnings (wages + tips) meet or exceed the federal minimum wage. This structure has raised concerns about wage theft and workers being shortchanged in some industries.
2. Youth Workers:
Young workers under the age of 20 can be paid a youth minimum wage of $4.25 per hour for the first 90 calendar days of employment. After this period, they must be paid the full federal or state minimum wage. There are also exceptions for workers under 18 who may not be eligible for the minimum wage for certain types of work, like internships or volunteer work.
3. Disabled Workers:
Workers with disabilities, whether physical or mental, may also be subject to subminimum wage laws under certain conditions. Employers must obtain certification to pay less than the minimum wage for workers with disabilities, which is a point of contention among labor advocates.
4. Exempt Employees:
Certain employees are considered exempt from minimum wage laws. These include executive, administrative, and professional employees who meet specific duties tests and earn above a certain salary threshold. As of 2025, employees who earn less than $35,568 per year are generally eligible for minimum wage protections, while those earning more may be exempt.
Frequently Asked Questions
Q1: Why has the federal minimum wage remained at $7.25 per hour for so long?
The federal minimum wage has remained unchanged primarily due to political gridlock in Congress. While there have been several proposals to raise the wage, including the Raise the Wage Act, the proposals have failed to pass. The debate over how much of an increase is appropriate and the impact on small businesses has led to deadlock on this issue.
Q2: How do employers handle minimum wage for tipped workers?
Employers of tipped workers must ensure that employees make at least the federal minimum wage when tips are factored in. If tips do not meet the required amount, the employer must make up the difference in wages. The specific rate of tipped minimum wage varies by state and locality.
Q3: Can an employee’s wage ever be below the federal minimum wage?
In general, no. However, there are exceptions for certain groups of workers, such as tipped employees and employees with disabilities, who may be paid less under specific circumstances with appropriate certifications.
Q4: What is the future of minimum wage increases in the U.S.?
Many advocates for workers are pushing for higher wages, especially in the context of rising inflation and the cost of living. Some states have already set a path toward $15 per hour and beyond. The challenge at the federal level remains to align the nation’s minimum wage with modern-day economic conditions.
Conclusion
As we look to the future of minimum wage laws, the 2025 updates offer a mix of hope and frustration. While the federal minimum wage remains stagnant, states and localities continue to make strides in providing better wages for their residents. The rise of state-specific wage increases, changes in tipped wages, and efforts to address eligibility criteria reflect the growing recognition that the $7.25 federal minimum wage is no longer adequate for many workers in the modern economy. Moving forward, the conversation about wage fairness will continue to evolve, with pressure building on federal lawmakers to take action and adjust the wage floor to better meet the realities of today’s workforce.