5 Reasons You Get Paid Less Than Minimum Wage

In an employment contract, an employer provides work to an employee. This work comes through several tasks that the employee must complete within a specific time. In exchange, the employee receives pay, which constitutes their salary or wage. In most cases, employers pay an hourly rate. Both parties agree to this rate before signing the employment contract. However, some laws may apply to the hourly rate.

When employees receive an hourly rate, employers must ensure it meets the minimum wage limit. This limit is the minimum hourly rate an employer must pay its employees under a contract. However, the employee should be nonexempt to receive that rate. These employees must earn a minimum wage set by the federal government. This law also qualifies them to receive overtime pay.

The minimum wage limit applies to all employers that hire employees to work for them. However, the law may offer some exemptions. In those cases, employers can pay lower than the minimum wage. Most employers compensate their workers at a higher rate to attract employees and retain them. Several reasons contribute to employees getting a higher rate than minimum wage.

What are the reasons you get paid less than the Minimum Wage?

As stated above, employers ensure they have a legal base to pay employees less than minimum wage. Usually, it implies that the employee is exempt from the minimum wage law. Legal factors are one of the most prevalent issues employees get paid less than minimum wage. However, other aspects of employment also impact how much employees receive for their compensation.

Employees receive a lower than minimum wage payment for several reasons. It may relate to their employment status or what they offer in exchange. The top 5 reasons employees get paid less than minimum wage include the following.

The employee is not nonexempt

A nonexempt employee is someone who must receive a minimum wage. The term “nonexempt” may have several definitions based on the law. In the US, it includes workers who make less than $684 per week. However, this rate may increase in the future. The employee must also be under the direct supervision of higher-ups who dictate their work. On top of that, there are several employees that the law exempts from this definition.

Nonexempt employees must fulfill their duties and carry out orders. These features make them eligible to receive a minimum wage. However, if an employee is exempt, they won’t fall under the law covering their wages. Despite that, employers may pay them a minimum wage or higher. However, it does not guarantee they will get that rate. Being an exempt employee is one of the common reasons workers get paid less than minimum wage.

The employer pays a subminimum wage

For some employees, the minimum wage law may not apply at all. However, they may still receive a subminimum wage. It is the rate that is below the minimum wage. Nonetheless, it still limits the lowest hourly wage rate employees can receive. The subminimum wage rate applies to specific workers. The law specifies who falls under this law.

In the US, the subminimum wage covers the following parties.

  • Students who work in retail, agriculture or higher education institutions. The law states that they must receive at 75% of the minimum wage limit set by the federal government.
  • People with disabilities, physical or mental, hindered from finding work.
  • An employee that receives at least $30 per month in tips. However, they must still get the minimum wage. Employers calculate this wage by adding those tips and the hourly rate they pay employees.

The employer offers additional benefits

In some cases, employers may not provide a minimum wage. However, they may offer additional benefits that make up for the lower payments. Usually, employees must pay for these benefits from their earned salary. However, if the employer covers those expenses, it compensates the worker for the lower wage. In these cases, the employee receives below minimum wage in substance.

Employers offer various employee benefits that cover the employees’ needs. These benefits may include health insurance, life insurance, dental insurance, retirement accounts. On top of that, some employers also offer accommodation, company vehicles, and other similar benefits. These benefits compensate employees for the lower pay they receive. However, employers may still pay them a minimum wage for legal purposes.

The employee is an independent contractor

The minimum wage law only covers employees. However, some companies may classify their workers as independent contractors to pay them a lower rate. It allows them to compensate the worker at an hourly rate lower than the minimum wage. However, other laws may dictate how to classify independent contractors properly. These laws exist to prevent employers from misclassifying employees.

An independent contractor is someone who controls their work. Unlike employees, they do not receive instructions from the employer. On top of that, interdependent contractors also bring their own equipment. They pay for their own expenses and receive a compensation per job basis. Furthermore, independent contractors do not get the employment benefits listed above. Other factors also exist when considering employee classification.

The employee does not offer value

Ultimately, if an employee does not receive the minimum wage, they may not provide value. It implies the employer does not see them as valuable to retain them. Therefore, the employer does not offer a minimum wage or higher than that. If an employer sees value in an employee, they will even consider paying them more. However, the opposite applies to other employees.

There are several factors that employers consider when evaluating worker compensation. These include the employee’s education and experience as an essential element. Usually, these dictate how much an employee receives as wages. On top of that, employee performance within a role can also add to their value. External factors also dictate how an employer evaluates its workers.

What to do if employees get paid less than the Minimum Wage?

The law provides several exemptions to the minimum wage rule. Despite that, some employers may underpay their employees. These employees may wonder what to do in those cases. Before taking any action, employees must ensure that the employer is not paying them the minimum wage. Usually, they must evaluate their payslip properly before deciding.

Sometimes, employers may subtract some deductions from the amount paid to the employee. Although the employee receives an amount lower than minimum wage, it is not an underpayment. However, if the payslip includes evidence of a rate less than minimum wage, the worker must take action. Before that, they must still talk to their employer and ensure no errors exist.

Once employees ensure the employer is underpaying them, they must contact the relevant authorities. Before doing so, they must collect evidence of the underpayment. From there, the authorities will investigate the case and take necessary actions. Employees can also sue their employer for any underpaid time. Legally, they can challenge any hours worked where the employer paid less than minimum wage.


A minimum wage is the lowest hourly wage rate an employee receives from employers. It obliges employers to pay that rate or face legal issues. However, it may not always apply. Some employers still pay their workers lower than the minimum wage. Several factors contribute to that. The top 5 reasons employees get paid less than minimum wage are available above.