2.1 Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) sets crucial workplace standards in the US. It establishes minimum wage, overtime pay, recordkeeping, and child labor rules for most private and public sector jobs. Understanding FLSA is vital for HR professionals to ensure proper employee compensation and classification.

FLSA covers key areas like minimum wage requirements, overtime pay calculations, and exemptions. It defines what counts as hours worked, including on-call and waiting time. The act also outlines recordkeeping duties, child labor provisions, and enforcement mechanisms. Compliance is essential to avoid penalties and legal issues.

Overview of FLSA

• The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments
• FLSA is a crucial piece of legislation for HR professionals to understand as it impacts compensation, hours worked, and employee classification
• Noncompliance with FLSA can result in significant penalties and legal liabilities for employers

Minimum wage requirements

• FLSA sets the federal minimum wage that employers must pay covered nonexempt employees for all hours worked
• The current federal minimum wage is $7.25 per hour, but many states and local jurisdictions have enacted higher minimum wages that take precedence over the federal rate

Federal vs state minimum wage

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• When an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage
• Some states have no minimum wage law (Alabama, Louisiana, Mississippi, South Carolina, and Tennessee) or have a minimum wage lower than the federal rate (Georgia and Wyoming), in which case the federal minimum wage applies
• As of 2023, 30 states and D.C. have minimum wages above the federal rate, with the highest being $15.74 in Washington state

Tipped employees minimum wage

• FLSA allows employers to pay a lower direct cash wage to tipped employees and take a tip credit to meet the minimum wage requirement
• The federal minimum direct cash wage for tipped employees is $2.13 per hour, and the maximum tip credit is$5.12 per hour (the difference between the regular minimum wage of $7.25 and the$2.13 direct cash wage)
• Employers must ensure that the combination of the employee's cash wage and tips equals at least the federal minimum wage for all hours worked

Youth minimum wage provisions

• FLSA allows employers to pay employees under 20 years old a youth minimum wage of $4.25 per hour for the first 90 consecutive calendar days of employment
• After 90 days or when the employee turns 20 (whichever comes first), the employee must receive the regular minimum wage
• Employers are prohibited from displacing regular employees to hire workers at the youth minimum wage

Overtime pay requirements

• FLSA requires employers to pay covered nonexempt employees overtime pay at a rate of no less than one and one-half times their regular rate of pay for all hours worked beyond 40 in a workweek
• Overtime pay is based on the regular rate of pay, which includes all non-overtime wages paid to an employee (hourly rate, salary, commissions, nondiscretionary bonuses, etc.)

Overtime pay calculations

• To calculate overtime pay, multiply the employee's regular rate of pay by 1.5 and then multiply the result by the number of overtime hours worked
• Example: An employee with a regular rate of $15 per hour who works 45 hours in a workweek is entitled to$15 x 1.5 x 5 = $112.50 in overtime pay for that week
• Overtime is calculated on a workweek basis, regardless of the length of the pay period (weekly, biweekly, semi-monthly, monthly)

Exemptions from overtime pay

• FLSA provides exemptions from both minimum wage and overtime pay for certain employees based on their job duties and compensation
• The most common exemptions are for executive, administrative, professional, outside sales, and certain computer employees (known as "white-collar exemptions")
• To qualify for a white-collar exemption, employees must generally be paid on a salary basis at not less than $684 per week and meet specific duties tests

Hours worked under FLSA

• FLSA requires employers to pay nonexempt employees for all hours worked, which includes all time an employee is required to be on duty, on the employer's premises, or at any other prescribed place of work
• Hours worked also includes any additional time the employee is allowed (i.e., suffered or permitted) to work

Defining hours worked

• Hours worked includes all time during which an employee is required to be on the employer's premises, on duty, or at a prescribed workplace
• This includes work performed at home, travel time between worksites, and certain on-call and waiting time
• Employers must compensate employees for any work performed, even if it is not requested or authorized, if the employer knows or has reason to believe the work is being performed

On-call time

• An employee who is required to remain on call on the employer's premises or so close that the employee cannot use the time effectively for their own purposes is considered to be working while on call
• An employee who is not required to remain on the employer's premises but is merely required to leave word at their home or with the employer where they may be reached is not considered to be working while on call

Waiting time

• Whether waiting time is considered hours worked depends on the particular circumstances
• Waiting time is compensable if the employee is unable to use the time effectively for their own purposes (engaged to wait)
• Waiting time is not compensable if the employee is completely relieved from duty and can use the time for their own purposes (waiting to be engaged)

Meal and break periods

• FLSA does not require employers to provide meal or break periods, but if they choose to do so, certain rules apply
• Bona fide meal periods (typically 30 minutes or more) are not considered hours worked if the employee is completely relieved from duty for the purpose of eating a meal
• Rest periods of short duration (usually 20 minutes or less) are considered hours worked and must be paid
• Unauthorized extensions of authorized breaks need not be counted as hours worked if the employer has expressly and unambiguously communicated that the authorized break may only last for a specific length of time and that any extension is contrary to the employer's rules

Recordkeeping requirements

• FLSA requires employers to keep certain records for each nonexempt employee, including personal information, hours worked each day and total hours worked each workweek, regular hourly pay rate, total daily or weekly straight-time earnings, total overtime earnings for the workweek, all additions to or deductions from the employee's wages, total wages paid each pay period, and date of payment and the pay period covered by the payment
• Records must be kept for at least three years, while payroll records, collective bargaining agreements, and sales and purchase records must be kept for at least two years

Posting requirements

• Employers must display an official poster outlining the requirements of FLSA, which is available at no cost from the Wage and Hour Division
• The poster must be displayed in a conspicuous place where employees can readily see it
• Employers are also required to post certain state-specific labor law posters in addition to the federal poster

Payroll records

• Payroll records must include the employee's full name, social security number, address, birth date (if younger than 19), sex, occupation, time and day of week when employee's workweek begins, hours worked each day, total hours worked each workweek, basis on which employee's wages are paid (hourly, weekly, piecework, etc.), regular hourly pay rate, total daily or weekly straight-time earnings, total overtime earnings for the workweek, all additions to or deductions from the employee's wages, total wages paid each pay period, and date of payment and the pay period covered by the payment

Timekeeping records

• Employers may use any timekeeping method they choose (time clock, computer, mobile app, etc.) as long as it is complete and accurate
• Employees must be paid for all hours worked, even if they do not clock in or out correctly or if they work unauthorized overtime
• Employers should have a policy requiring employees to accurately record all hours worked and to report any errors or discrepancies immediately

Child labor provisions

• FLSA establishes minimum age requirements and limits the number of hours and types of jobs that minors can work to protect their health, safety, and well-being
• The rules vary depending on the age of the minor and the type of work involved

Minimum age standards

• Generally, the minimum age for employment is 14 years old
• At age 14 or 15, minors may work outside school hours in various non-manufacturing, non-mining, non-hazardous jobs under certain conditions
• At age 16 or 17, minors may work in any occupation other than those declared hazardous by the Secretary of Labor
• At age 18, there are no federal child labor restrictions

Hazardous occupations

• The Secretary of Labor has declared certain occupations to be particularly hazardous for minors under the age of 18
• These hazardous occupations include working with explosives, driving a motor vehicle, operating power-driven machines, and working in mining, logging, or roofing
• There are limited exemptions for apprentices and student-learners in certain occupations under specified standards

Hours and time restrictions

• 14- and 15-year-olds may work outside school hours in various non-manufacturing, non-mining, non-hazardous jobs, but only under the following conditions:
  • No more than 3 hours on a school day or 18 hours in a school week
  • No more than 8 hours on a non-school day or 40 hours in a non-school week
  • Work may not begin before 7 a.m. or end after 7 p.m., except from June 1 through Labor Day, when evening hours are extended to 9 p.m.
• There are no limits on work hours for 16- and 17-year-olds, but they may not work in hazardous occupations

FLSA enforcement

• The Wage and Hour Division of the U.S. Department of Labor is responsible for administering and enforcing FLSA
• Enforcement activities include conducting investigations, assessing penalties, and providing compliance assistance to employers

Wage and Hour Division

• The Wage and Hour Division (WHD) is a division of the U.S. Department of Labor that is responsible for enforcing federal labor laws, including FLSA
• WHD investigators conduct investigations and gather data on wages, hours, and other employment conditions to determine compliance with the law
• Investigations may be conducted on-site at the employer's establishment or remotely by phone, email, or mail

Penalties for violations

• Employers who violate FLSA may be subject to civil and criminal penalties, depending on the nature and severity of the violation
• Civil money penalties of up to $1,100 per violation may be assessed for repeated or willful minimum wage or overtime violations
• Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,100 for each such violation
• Employers who violate the child labor provisions are subject to a civil money penalty of up to $11,000 per worker for each violation
• In addition to civil penalties, employers who willfully violate FLSA may be subject to criminal prosecution and fines of up to $10,000, and a second conviction may result in imprisonment

Employee rights and protections

• Employees have the right to file a complaint with the WHD if they believe their employer has violated FLSA
• Complaints can be filed anonymously, and the WHD will not reveal the employee's identity to the employer
• Employers are prohibited from retaliating against employees who file complaints or cooperate with WHD investigations
• Employees who are discharged or discriminated against may file a retaliation complaint with the WHD or may file a private lawsuit seeking reinstatement, lost wages, and other damages

FLSA coverage

• FLSA applies to employees who are engaged in interstate commerce or in the production of goods for interstate commerce, or who are employed by an enterprise engaged in interstate commerce or in the production of goods for interstate commerce
• There are two ways in which an employee can be covered by FLSA: enterprise coverage and individual employee coverage

Enterprise coverage

• Employees who work for certain businesses or organizations (or "enterprises") are covered by FLSA if the enterprise has at least two employees and:
  • Has an annual dollar volume of sales or business done of at least $500,000; or
  • Is a hospital, business providing medical or nursing care for residents, school or preschool, or government agency
• All employees of a covered enterprise are entitled to FLSA protections, regardless of their individual duties or compensation

Individual employee coverage

• Even if an employer is not a covered enterprise, individual employees may be covered by FLSA if their work regularly involves them in interstate commerce
• Examples of employees who are covered on an individual basis include those who:
  • Produce goods that will be sent out of state
  • Regularly make telephone calls to persons located in other states
  • Handle records of interstate transactions
  • Travel to other states for work
• Domestic service workers (such as housekeepers, cooks, and babysitters) are also covered by FLSA

Exempt vs nonexempt employees

• FLSA classifies employees as either exempt or nonexempt from minimum wage and overtime requirements
• Nonexempt employees are entitled to minimum wage and overtime pay, while exempt employees are not
• To be classified as exempt, an employee must generally meet three tests: the salary basis test, the salary level test, and the duties test

Salary basis test

• To be exempt, an employee must be paid on a salary basis, which means the employee regularly receives a predetermined amount of compensation each pay period, regardless of the quality or quantity of work performed
• The employee must receive their full salary for any week in which they perform any work, with limited exceptions for certain deductions
• Deductions from pay are permissible when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability, for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness, to offset amounts employees receive as jury or witness fees, or for military pay, for penalties imposed in good faith for infractions of safety rules of major significance, or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions

Duties tests

• To qualify for an exemption, an employee's primary job duties must meet certain criteria established by FLSA regulations
• The most common exemptions are for executive, administrative, professional, outside sales, and certain computer employees
• Each exemption has its own specific duties test that must be met in addition to the salary basis and salary level tests
• For example, to qualify for the executive exemption, an employee's primary duty must be managing the enterprise or a customarily recognized department or subdivision of the enterprise, they must customarily and regularly direct the work of at least two other full-time employees or their equivalent, and they must have the authority to hire or fire other employees or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight

Highly compensated employees

• FLSA provides a special rule for "highly compensated employees" who are paid total annual compensation of $107,432 or more, which includes at least$684 per week paid on a salary or fee basis
• A highly compensated employee is deemed exempt if they customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee
• This is a less stringent duties test than the standard duties tests for the executive, administrative, and professional exemptions

FLSA compliance strategies

• Employers should take proactive steps to ensure compliance with FLSA and to minimize the risk of costly violations and lawsuits
• Key compliance strategies include auditing pay practices, updating policies and procedures, and training managers and supervisors

Auditing pay practices

• Employers should regularly audit their pay practices to ensure they are complying with FLSA requirements
• This includes reviewing employee classifications to ensure exempt employees meet the salary basis, salary level, and duties tests
• Employers should also review timekeeping and payroll records to ensure nonexempt employees are being paid for all hours worked and are receiving appropriate overtime pay
• Any errors or discrepancies should be promptly corrected and any back wages owed should be paid

Updating policies and procedures

• Employers should have written policies and procedures in place that clearly communicate FLSA requirements to employees and managers
• Policies should cover topics such as timekeeping, meal and break periods, overtime, and employee classifications
• Policies should be regularly reviewed and updated to ensure they comply with any changes to FLSA regulations or interpretations
• Employers should also have a complaint procedure in place for employees to report any FLSA violations or concerns

Training managers and supervisors

• Managers and supervisors play a key role in ensuring FLSA compliance, as they are often responsible for timekeeping, scheduling, and other pay practices
• Employers should provide regular training to managers and supervisors on FLSA requirements and company policies and procedures
• Training should cover topics such as proper timekeeping, identifying and preventing off-the-clock work, handling overtime requests, and recognizing and reporting FLSA violations
• Managers and supervisors should also be trained on the importance of maintaining accurate records and the consequences of FLSA violations for both the company and individual managers