You can pay new employees at a lower rate while you train them -- but make sure that you are within the bounds of the law.
Many businesses are either not aware that they can pay new employees training wages or not sure how training wages work. If you own a business, why pay more than you need to for new employees? Learning the law regarding training wages will put you on solid legal footing when you decide to pay new employees at this lower rate.
The Fair Labor Standards Act of 1938 established the first minimum wage in the United States. It also allowed employers to pay certain new employees at a rate lower than this for a temporary period of time. For an employee to be eligible for less than the standard minimum wage, the following requirements must be met:
- The employee must be under the age of 20.
- The training wage cannot be paid for longer than 90 days, generally speaking, though under some circumstances you extend this an additional 90 days, such as if the employee changes jobs.
- You may not displace regular employees for the sake of hiring employees that you can pay at a training wage.
- You can never employ any worker for more than 180 days at a training wage no matter how many different jobs he has with you.
- The training wage must be at a rate of 85 percent of the applicable minimum wage or $3.62, whichever is the higher hourly rate.
State Training Wages
States often have laws regarding training wages as well. Since there are so many different state laws, a detailed explanation of all state training law would be prohibitively long. Check with your legal department to see what the state laws are regarding training wages for new employees.
One important fact no matter where you do business is the manner in which state and federal labor laws are reconciled with one another. When state and federal labor laws are in conflict with one another, the stricter of the two laws applies. This means if you do business in a state that prohibits training wages, it doesn’t matter what the federal laws are, you must follow the state laws. Similarly, if your state laws are more lax than federal laws, you must follow federal law.
The only exemption to this reconciliation is if your business is not covered by the Fair Labor Standards Act. Most businesses are covered by this act, however if you do not do business in interstate commerce or you run a business that is primarily agricultural, you are not covered by this law. “Interstate commerce” has been defined very broadly by the courts and includes most businesses.
Advantages of Training Wages
The main advantage of training wages is obvious -- it allows you to save money on labor, one of the biggest sources of overhead for businesses. Another more subtle advantage is allowing you to not pay more than you need to for people you won’t be keeping. Training wages allow you to evaluate an employee before you hire him on at a full wage. For the price of a training wage you can perhaps hire several employees, evaluate them against one another and decide which is the best fit for the position and your company culture. With all the hidden costs associated with training, paying a full wage to a trainee is just bad business.