A more thorough explanation:

Overview: Minimum wage laws require employers to pay a certain base level of pay to covered employees. The current federal minimum wage is $7.25 per hour. Some states also have their own minimum wages, which can be higher or lower than the federal minimum wage. When an employee is subject to both state and federal minimum wage laws, they are entitled to the higher of the two minimum wages.

Fair Labor Standards Act: The national minimum wage was created by Congress under the Fair Labor Standards Act (FLSA) in 1938. FLSA provided for minimum wages, overtime pay, record keeping requirements, and child labor regulations. The purpose of the minimum wage was to stabilize the post-depression economy and protect workers in the labor force. FLSA specifically provided for a minimum wage for full-time and part-time, public and private sector workers who are “engaged in” or “in the production of goods for” interstate and foreign commerce.

Employees: FLSA's requirements only apply to “employees.” To determine whether an individual is an employee under the FLSA, courts usually focus on the economic reality of the relationship. The important issue is whether the individual is “economically dependent” on the business to which the employee renders service. Courts also look at a variety of factors that are similar to those used in the common law tort context to differentiate employees from independent contractors.

Exemptions: Congress exempted certain employees from the minimum wage provisions, such as executives, administrators, professionals, and outside salespersons. Other exceptions apply under specific circumstances to workers with disabilities or full-time students.

Enforcement: FLSA authorizes the Secretary of Labor to use several different methods to evaluate an employer's conduct and enforce the minimum wage requirement. The Wage and Hour Division in the Labor Department can investigate and detect violations, compel the attendance of witnesses at hearings, and require an employer to make records available. The Secretary can sue to restrain violations and recover unpaid benefits on behalf of employees.

Damages and Remedies: Damages for employees for violations can be significant. The FLSA affords a private right of action for employees to recover unpaid minimum wages. An employee may bring a claim on their own behalf and on behalf of any “similarly situated” employees. The FLSA has both civil and criminal components, providing for criminal penalties and fines. Civil remedies can include all unpaid compensation, liquidated damages, reinstatement, and attorneys' fees.

Example: A company in a state with a minimum wage of $10 per hour hires an employee who is covered by FLSA. The federal minimum wage is $7.25 per hour. The employee is entitled to the higher of the two minimum wages, which is $10 per hour. If the company fails to pay the employee the minimum wage, the employee can bring a claim under FLSA to recover the unpaid wages and other damages.