How Is Minimum Wage Determined? Federal, State, and City Rules

The minimum wage in the United States is determined by a layered system: federal law sets a national floor of $7.25 per hour under the Fair Labor Standards Act, and states, counties, and cities are free to require more. Whichever rate is highest — federal, state, or local — is the one your employer must pay. That is why the same job at the same company can pay very different hourly wages depending on the address where the work happens.

How the Federal Rate Gets Set

The federal minimum wage is written into statute at 29 U.S.C. § 201, the Fair Labor Standards Act.¹ Changing the rate is not an administrative decision. Congress has to amend the statute, which means both the House and Senate must pass the same bill and the President must sign it. A veto can be overridden by a two-thirds vote in both chambers.

The current $7.25 rate took effect on July 24, 2009.² No amendment has passed since 2007, so the rate has held for more than 16 years — the longest stretch without a federal increase since the FLSA was enacted in 1938.³ Because Congress has not acted, almost all of the movement in what workers actually earn at the bottom of the pay scale has come from states and cities.

How States and Cities Set Their Own Rates

As of January 2026, 30 states and the District of Columbia require hourly pay above $7.25.⁴ The numbers vary widely. Washington state requires $17.13 per hour. The District of Columbia requires $17.95. New York requires $17.00 in New York City, Nassau County, Suffolk County, and Westchester County. States like Georgia and Wyoming either have no state minimum or set one below $7.25, so the federal rate governs there instead.

Two mechanisms account for most of these rates. The first is ordinary legislation: a state legislature passes a bill, usually after committee hearings where labor groups and business owners testify, and the governor signs it. The second is direct democracy — a ballot measure that lets voters approve an increase without going through the legislature. Ballot measures have driven a large share of the increases over the past decade, particularly in western states.

Cities and counties can layer their own ordinances on top, which is why urban rates often run higher than the state rate. When federal, state, and local rules overlap, the highest applicable rate wins.⁵

State Preemption

Local authority is not universal. Roughly 25 states have passed preemption laws that block cities and counties from adopting minimum wages higher than the state level, and in some cases those preemption laws retroactively invalidated local ordinances that had already taken effect. If you live in a preemption state, the state rate — or the federal rate, if the state has not set its own — is the ceiling on what any government in that state has required.

What Lawmakers Look At When Setting a Rate

Whether the decision sits with Congress, a state legislature, or voters weighing a ballot measure, the same economic indicators tend to drive the conversation.

The Consumer Price Index, published by the Bureau of Labor Statistics, tracks the average change in prices consumers pay for everyday goods and services like groceries, housing, and energy.⁶ When prices rise faster than wages, the CPI is the number cited to show that the existing minimum is losing ground.

Federal poverty guidelines offer a second benchmark. For 2026, the poverty guideline for a single person in the 48 contiguous states is $15,960 per year.⁷ A full-time worker at $7.25 per hour earns roughly $15,080 before taxes, about $880 below the single-person line and far short of the $33,000 guideline for a family of four. That gap is a fixture of the argument for raising the federal rate.

Local labor market data fills in the rest: unemployment rates, average hourly earnings in retail and food service, and the fact that a dollar goes further in a rural town than in a major metropolitan area. Cities with higher costs tend to adopt higher rates than the surrounding region for that reason.³

Automatic Adjustments for Inflation

Nineteen states and the District of Columbia have taken the recurring legislative fight off the table by indexing their minimum wage to inflation. The rate adjusts each year based on changes in a price index, typically the Consumer Price Index for Urban Wage Earners and Clerical Workers.⁶ If CPI-W rises 3 percent, the minimum wage rises 3 percent the following year.

Most indexed states calculate the new rate in the fall and publish it before it takes effect on January 1. The District of Columbia adjusts on July 1.⁴ Many indexing formulas round to the nearest five or ten cents to keep payroll simple, and most include a floor so the rate holds steady rather than falling during periods of deflation.

Categories That Change Your Personal Rate

Federal law recognizes several categories where the applicable rate is not the standard $7.25.

If you regularly receive more than $30 per month in tips, your employer can pay a cash wage as low as $2.13 per hour and take a tip credit of up to $5.12 toward the minimum.⁸ Your tips plus cash wage must still reach $7.25 for every workweek; if they fall short, the employer makes up the difference. Several states have eliminated or reduced the tip credit and require the full state minimum before tips.

Workers under 20 can be paid a youth minimum of $4.25 per hour during the first 90 consecutive calendar days of employment. The 90 days run on the calendar, not on days actually worked, so the window closes quickly. When you turn 20 or the 90 days expire, whichever comes first, the full minimum applies.⁹

Under Section 14(c) of the FLSA, an employer holding a special certificate from the Wage and Hour Division can pay a worker with a disability a rate proportional to that worker’s productivity compared to nondisabled workers doing the same type of work in the same area. The rate has to be reviewed at least every six months.¹⁰

Federal contract work has its own rate. Executive Order 14026, which had set a contractor minimum above $17 per hour with annual adjustments, was revoked by Executive Order 14236 on March 14, 2025.¹¹ The earlier Executive Order 13658 still applies to contracts awarded between January 1, 2015, and January 29, 2022, that have not been renewed or extended since. The Department of Labor set that rate at $13.65 per hour beginning May 11, 2026, with a $9.55 cash wage for tipped employees.¹²

Figuring Out Which Rate Applies to You

Start with the federal $7.25 as a baseline, then check your state’s rate. If your state sits above the federal floor, that higher number is your starting point. Then check whether your city or county has its own ordinance; a local rate above the state number becomes yours, unless you live in a preemption state where localities cannot exceed the state figure. Finally, adjust for category — tipped, youth, 14(c), or federal contractor — because those rules can change the cash wage your employer is required to pay, subject to the tip-credit make-up rule for tipped workers.

A worker in New York City on standard non-tipped work is entitled to $17.00 because the state rate for that region tops the federal floor. A worker in Wyoming is entitled to $7.25 because the federal rate tops the state number. The framework does not change; only the inputs do.

If You’re Being Paid Less Than the Applicable Rate

The Department of Labor’s Wage and Hour Division enforces the federal minimum. You can file a complaint online or by calling 1-866-487-9243, and the nearest field office will contact you within two business days.¹³ Federal law gives you two years from the date of a violation to sue for unpaid wages, extended to three years if the violation was willful.¹⁴ State wage claims may carry different deadlines, so check your state’s rules if you plan to pursue a claim under state law too.

1
Office of the Law Revision Counsel. 29 USC Chapter 8 – Fair Labor Standards
2
U.S. Department of Labor. Wages and the Fair Labor Standards Act
3
U.S. Bureau of Labor Statistics. Characteristics of Minimum Wage Workers, 2024
4
U.S. Department of Labor. State Minimum Wage Laws
5
U.S. Department of Labor. Consolidated Minimum Wage Table
6
U.S. Bureau of Labor Statistics. Consumer Price Index Frequently Asked Questions
7
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
8
U.S. Department of Labor. Minimum Wages for Tipped Employees
9
U.S. Department of Labor. Fact Sheet #32 – Youth Minimum Wage – Fair Labor Standards Act
10
eCFR. Part 525 – Employment of Workers With Disabilities Under Special Certificates
11
U.S. Department of Labor. Final Rule – Increasing the Minimum Wage for Federal Contractors (Executive Order 14026)
12
Federal Register. Minimum Wage for Federal Contracts Covered by Executive Order 13658 – Notice of Rate Change in Effect
13
Worker.gov. Filing a Complaint With the U.S. Department of Labors Wage and Hour Division
14
Office of the Law Revision Counsel. 29 USC 255 – Statute of Limitations