In recent decades the minimum wage law has distinguished between establishments and occupations in which workers must be paid at least a minimum and, in contrats, those in which the workers are not protected by a minimum wage at all.  Recently a few states have added a middle ground: a subminimum wage for workers in small businesses.  It will be interesting to watch the evolution of this new approach in the future.  But first, some background. 

Today’s broad coverage of workers under the minimum wage in both the U.S. and in other countries came about only gradually after World War II.  The expansion (and occasionally the reduction) of this coverage took place along two lines in the U.S.  One was frequent amendment of the law to include additional types of enterprises, organizations, and occupations under minimum wage protection, including, in the 1960s and 1970s, workers in hospitals, schools, restaurants, farms, and state and local government. 

The other was the adoption of a dollar figure to distinguish between large businesses, whose employees would be covered by the minimum wage, and small businesses, whose employees would not be.

The first retail volume cut-off figure was $1 million, established under President Kennedy in 1961.  Until then, the law listed the particular occupations and businesses falling under the minimum wage umbrella.  These had to be occupations and businesses that were regarded as engaging in interstate commerce because it was and still is interstate commerce that provides the legal basis for federal authority over wage minimums.  In 1961, Congress decided that any business that took in $1 million annually probably participated in interstate commerce, and the itemized list was no longer needed.  After being amended over the years, the dollar volume test today stands at $500,000, in part because interstate transactions have become so common.  (Other provisions make the test even less restrictive.  The dollar volume criterion does not apply to schools and hospitals, whose employees are covered.  Further, even employees of small neighborhood firms whose work during a certain week may involve interstate commerce are covered for that week.)   

Today about twelve states have their own guidelines for distinguishing between large and small businesses (in addition to the exclusions for certain occupations, such as maids, newspaper carriers, and others).  Some states use a dollar volume test similar to the federal one, others use a number-of-employees test, and some use both.  But three states use such criteria to distinguish not between all-or-nothing minimum wage protection but between a regular minimum wage and a small-business minimum wage.   Pennsylvania for example, has set, as of July 1, 2007, its regular minimum wage at $6.65 along with a subminimum wage $5.65 for firms with 10 employees or fewer. Oklahoma distinguishes between firms with more than 10 employees or with gross sales of at least $100,000, regardless of the number of employees, all of which are protected by the current minimum, and those that fall below those numbers, where the only protection is a $2.00 subminimum.  (In Oklahoma as in some other states, the entire state minimum wage law applies only to firms not covered under the federal law, which in most cases means small businesses falling under the $500,000 cut-off.  The state, in other words, is providing its own wage minimums for small and very small businesses that fall below the federal radar.)  Minnesota provides a $6.15 minimum wage to employees in firms grossing more than $625,000 and a $5.25 minimum to those in firms grossing less. 

Nevada broke new ground in 2006 when it set different minimum wages based on whether employees are or are not covered by company-provided health insurance.

The setting of a subminimum wage for employees of small business seems a feasible way to address not only the employees’ needs but the limitations of a small business budget.  As the examples above suggest, from farm states to one with a booming tourist industry, a state can tailor its subminimum wage to suit its particular business and labor economies. 

                                             --Brock Haussamen; revised August 2007