The cost of doing business includes any expense related to running a company. One of the major expenses that companies have is labor, which some experts suggest can be as high as 70%.1 Labor costs include human resources (HR), employment-related taxes, and compensation.

The latter category includes any kind of remuneration to management, employees, and other workers, such as bonuses, stock plans, and employee salaries. Wages make up a big portion of labor expenses, including minimum wages, which is considered a semi-variable cost. We explain why below.

Key Takeaways

• A minimum wage is the lowest wage an employer can pay an hourly worker for duties performed while on the job.
• Minimum wage is considered a semi-variable cost.
• The base minimum wage rate makes the expense fixed while any additional pay for extra hours worked is considered variable.

What Is a Minimum Wage?

The term minimum wage refers to the lowest wage an employer is legally required to pay an employee for work and other duties completed during a certain period. Most employees who receive a minimum wage are paid on an hourly basis. Since they are paid hourly, employees who receive minimum wage do not receive an annual salary.

Depending on the location and circumstances, the minimum wage threshold can be set by one of the following:

• Governments through laws and statutes
• Labor courts or tribunals
• Wage boards or councils2

This amount "cannot be reduced by collective agreement or an individual contract."3

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