FLSA - Fair Labor Standards Act

The FLSA establishes minimum wage, overtime pay, record-keeping, and child labor standards for non-exempt employees in both the private and public sectors.  The FLSA applies to enterprises that have employees engaged in interstate commerce.  Non-exempt employees may also be covered through individual coverage.

 

Key Definitions

Under the FLSA, covered non-exempt workers are entitled to a minimum wage of not less than $6.55 an hour.  Non-exempt employees paid on an hourly basis must receive at least the federal minimum wage for every hour worked.  When non-exempt employees are paid in other ways, such as salary, commission, or a piece-rate basis, their pay must generate an hourly rate not less than the federal minimum wage when divided by the total hours worked in the workweek.

Note: In May 2007, President Bush signed into law the Fair Minimum Wage Act of 2007, increasing the federal minimum wage in stages to $5.85 per hour on July 24, 2007; $6.55 per hour on July 24, 2008; and $7.25 per hour on July 24, 2009.

 

Many states also have minimum wage laws.  Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

 

An employer of a tipped employee is only required to pay $2.13 an hour in direct wages if that amount plus the tips received equals at least the federal minimum wage, the employee retains all tips, and the employee customarily and regularly receives more than $30 a month in tips. If an employee’s tips combined with the employer’s wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.

Other FLSA exceptions to the federal minimum wage requirements include certain individuals with a mental or physical disability, full-time students employed in certain jobs, and employees under 20 years old during their first 90 consecutive calendar days of employment.

Non-exempt employees do not fall into one of the FLSA’s exempt categories.  Non-exempt employees must be paid at least the minimum wage for all hours worked, and time-and-a-half their regular rates of pay for all hours worked over 40 in one week.  Employees who are paid a salary, instead of an hourly wage, may be non-exempt under the FLSA, as may be volunteer workers, if there is an express or implied agreement that they will be paid.

An enterprise is an employer that meets the following requirements.

• Has at least two employees.
  
  
• Is engaged in interstate commerce, produces goods for interstate commerce, or handles, sells, or works on goods or materials that have been moved in or produced for interstate commerce.
  
  
• Does at least $500,000 a year in business, unless it is a hospital, business providing medical or nursing care for residents, school, preschool, or government agency.
  
  
• Construction enterprises, laundries, and cleaners, which were in business on March 31, 1990, or retail enterprises with 1989 sales of $362,500 and non-retail enterprises with sales of $250,000 which were still in business on March 31, 1990 are also covered enterprises.

Individual coverage applies to non-exempt employees of firms which don’t meet the $500,000 annual dollar volume test, but who, in any workweek, are individually engaged in interstate commerce, the production of goods for commerce, or any activity which is closely related and directly essential to the production of goods for interstate commerce. 

Examples: Those who produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) 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 on their jobs; and do janitorial work in buildings where goods are produced for shipment outside the state. 

Employees’ regular rate of pay can’t be less than the minimum wage and, with a few exceptions, includes all payments for employment.  Payments which aren’t part of the regular rate include:

• reimbursement for expenses incurred on the employer’s behalf;
  
  
• premium payments for overtime work, or the true premiums paid for work on Saturdays, Sundays, and holidays;
  
  
• discretionary bonuses;
  
  
• gifts and payments given on special occasions; and
  
  
• payments for occasional periods when no work is performed due to vacation, holidays, or illness.

Exemptions From The FLSA

Under the FLSA, certain employees are exempt from the minimum wage and overtime requirements if they meet the requirements of a duties test and a salary test.

1. Duties test.  The duties test applies to certain groups — executive, administrative, learned and creative professional, highly-compensated, and outside sales — who meet the following criteria.
   
   
   1. Executive exemption
      
      
      1. The employee must be paid on a salary basis at a rate not less than $455 per week.
         
         
      2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.
         
         
      3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
         
         
      4. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
         
         
   2. Administrative exemption 
      
      
      1. The employee must be paid on a salary or fee basis at a rate not less than $455 per week.
         
         
      2. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
         
         
      3. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
         
         
   3. Learned professional exemption
      
      
      1. The employee must be paid on a salary or fee basis at a rate not less than $455 per week.
         
         
      2. The employee’s primary duty must be the performance of work requiring advanced knowledge that’s predominantly intellectual in character, which includes work requiring the consistent exercise of discretion and judgment.
         
         
      3. The advanced knowledge must be in a field of science or learning.
         
         
      4. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
         
         
   4. Creative professional exemption
      
      
      1. The employee must be paid on a salary or fee basis at a rate not less than $455 per week.
         
         
      2. The employee’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
         
         
   5. Highly compensated employee exemption
      
      
      1. The employee earns total annual compensation of $100,000 or more, which includes at least $455 per week paid on a salary basis.
         
         
      2. The employee’s primary duty includes performing office or non-manual work.
         
         
      3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.
         
         
   6. Outside sales exemption
      
      
      1. The employee’s primary duty is making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.
         
         
      2. The employee must be customarily and regularly engaged away from the employer’s place or places of business.
         
         
2. Salary test.  Exempt employees must also be paid on a salary basis.  That means they must regularly receive the same amount on pay day, regardless of the hours worked, and can’t be docked for hours not worked in a day.
   
   Exempt status may not be jeopardized if salary is docked under these circumstances:
   
   
   1. absences for a full day or more for personal reasons, not including illness or injury;
      
      
   2. absences for a full day or more for illness or injury, in accordance with a bona fide plan, policy, or practice of providing compensation for loss of salary due to illness or injury;
      
      
   3. unpaid leave in compliance with the Family and Medical Leave Act;
      
      
   4. any workweek in which no work is performed;
      
      
   5. discipline for infractions of major safety rules; or
      
      
   6. unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.

Regulations issued in 2004 revised the tests for exempt status. Most significantly, these regs dumped the old long and short tests employers had formerly applied to determine employees’ exempt status. Under the old long test for the administrative exemption, for example, an employee could spend no more than 20% of his/her time on non-exempt duties. Under the old short test, an employee had to spend a majority of his/her time on exempt duties.

The 2004 regs also raise the amount of money employees must earn to be considered exempt. The salary amounts hadn’t been raised since the 1970s, when they were set at $155 a week under the long test and $250 a week under the short test, for most exemptions. Now, employees who earn $23,660 a year or less ($455 a week) will be eligible for overtime, regardless of whether they were exempt from the law under the old regs.

 

Overtime Exemption Only

Certain employees are exempt from the FLSA’s requirement to pay overtime only.  These employees include the following.

1. Certain commissioned employees of retail or service establishments.
   
   
2. Auto, truck, trailer, farm implement, boat or aircraft salespersons, or parts clerks and mechanics servicing autos, trucks, or farm implements who work for non-manufacturing employers which are primarily engaged in selling these items to ultimate purchasers.
   
   
3. Railroad and air carrier employees, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees who are paid under approved trip-rate plans.
   
   
4. Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations. 
   
   
5. Domestic service workers who live in their employer’s home.
   
   
6. Employees of motion picture theaters.
   
   
7. Farmworkers.

Partial Exemption From Overtime Only

Certain employees may be partially exempt from the FLSA’s requirement to pay overtime only.  These employees include the following.

1. Employees engaged in certain operations on agricultural commodities and employees of certain bulk petroleum distributors.
   
   
2. Hospital and residential care establishments which have agreements with employees to work a 14-day work period in lieu of a 7-day workweek (if employees are paid overtime pay within the requirements of the FLSA for all hours worked over eight in a day or 80 in the 14-day work period, whichever is the greater number of overtime hours).
   
   
3. Employees who lack a high school diploma or who haven’t completed the 8th grade may be required by their employer to spend up to 10 hours in a workweek in remedial reading or training in other basic skills that aren’t job-specific, so long as they are paid their normal wages for the hours spent in training.  These employees need not be paid overtime premium pay for their training hours.

Police, Fire Fighters, Paramedics, And Other First Responders

Regulations issued in 2004 clarify that police officers, fire fighters, and emergency medical technicians, to name just three, can never claim exempt status under the FLSA, regardless of rank or pay.

In addition to police officers who walk a beat, the police exclusion includes detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, and park rangers.

In addition to fire fighters, paramedics, emergency medical technicians, ambulance personnel, and rescue workers are covered under the overtime provisions of the law, as are hazardous materials workers and similar employees.

 

Hours Worked Under The FLSA

To determine the amount non-exempt employees must get paid to comply with the FLSA’s minimum wage and overtime requirements, employers must know how many hours they work each week.

A workweek includes all time during which an employee must be on the employer’s premises, on duty, or at a prescribed workplace.  Workweeks are any fixed period of 168 hours, i.e., seven consecutive 24-hour periods.  It need not coincide with a calendar week, but may begin on any day and at any hour of the day.  Different workweeks may be established for different employees or groups of employees.

Averaging of hours over two or more weeks is prohibited.  Normally, overtime pay earned in a week must be paid on the regular pay day for the pay period in which the wages were earned. 

A workday, in general, means the period of time on any particular day when employees begin their “principal activity” and the time when the principal activity ceases.  The workday, therefore, may be longer than the employees’ scheduled shift, hours, tour of duty, or production line time.

Principal activity is any work of consequence that benefits the employer, regardless of when it’s performed (i.e., before or after the workday).

Special Considerations: Employers may run into problems when they try to determine employees’ hours worked in these seven situations.

1. Work “suffered or permitted.”  Work not requested, but suffered or permitted to be performed, is work time, and must be included in calculations.  Even if the employer has expressly stated “no overtime,” if employees choose to put in extra hours and the employer knows about it, the employer must pay non-exempts overtime compensation.
   
   
2. Waiting time.  Whether waiting time is time worked under the FLSA depends on if employees are engaged to wait (which is compensable work time) or waiting to be engaged (which isn’t compensable work time).  The difference: whether employees are free to use the time for personal activities.
   
   
3. On-call time.  On-call employees who are required to remain on the employer’s premises are considered to be working while on-call.  On-call employees who are required to remain at home, or who are allowed to leave a message where they can be reached usually aren’t working while on-call.  However, additional constraints on employees’ freedom could require on-call time to be compensated. 
   
   
4. Rest and meal periods.  The FLSA does not require meal or rest breaks.  However, if breaks are provided, they must be compensated accordingly.  Rest periods of short duration, usually 20 minutes or less, are customarily paid for as working time, and must be counted as hours worked.  Bona fide meal periods (typically 30 minutes or longer) generally need not be compensated as work time, if employees are completely relieved from their duties for the purpose of eating regular meals.  Employees aren’t completely relieved if they are required to perform any duties, whether active or inactive, while eating.
   
   
5. Sleeping time and certain other activities.  Employees who must be on duty for less than 24 hours are working even though they can sleep or engage in other, personal activities when not busy.  Employees who must be on duty for 24 hours or longer may agree with their employer to exclude from hours worked bona fide, regularly scheduled sleeping periods of not more than eight hours, if the employer supplies adequate sleeping facilities and employees can usually enjoy an uninterrupted night’s sleep.  No exclusion from hours worked is permitted unless at least five hours of sleep is taken.
   
   
6. Travel time.  Determining whether time spent traveling is compensable working time depends on the kind of travel involved.
   
   
   1. Home-to-work travel.  Employees who travel from home before the regular workday and return to their home at the end of the workday are engaged in regular commuting time, which isn’t working time.  This is true even if they don’t work out of the home office and their work site changes day-to-day.
      
      Employers do not have to pay employees who drive a company vehicle for time spent commuting from their homes to or from a work site when: driving the employer’s vehicle is strictly voluntary and not a condition of employment; the vehicle is the type that would normally be used for commuting; the employee incurs no costs for driving or parking the vehicle; and the work site falls within the normal commuting area of the employer’s establishment.
      
      
   2. Travel that’s all in the day’s work.  Time spent in travel as part of a principal activity, such as travel from job site to job site during the workday, must be counted as hours worked. 
      
      
   3. Home-to-work travel on a special one-day assignment in another city.  Employees who regularly work at one location are given a special one-day assignment in another city and return home the same day.  The time spent traveling to and returning from the other city is working time, except that the employer doesn’t have to count the time employees would normally spend commuting to their regular workplace.
      
      
   4. Travel away from the home community.  Travel that keeps employees away from home overnight is travel away from home, and is clearly work time when it cuts across employees’ workdays.  The time isn’t only hours worked on regular working days during normal working hours, but also during corresponding hours on non-work days.  As a matter of policy, the time spent traveling outside of regular working hours as a passenger on an airplane, train, boat, bus, or car won’t be considered work time.
      
      
7. Lectures, meetings, and training programs.  Attendance at lectures, meetings, training programs, and similar activities need not be counted as working if: the course is given outside employees’ regular working hours; attendance is voluntary; the course isn’t directly related to employees’ jobs; and employees don’t perform any productive work during the activity.

Deductions From Wages

The FLSA doesn’t allow uniforms, or other items which are considered to be primarily for the benefit or convenience of the employer, to be included as wages.  Therefore, employers may not take credit for these items in meeting their obligations toward paying the minimum wage or overtime.

Uniforms.  The FLSA doesn’t require that employees wear uniforms.  However, if wearing uniforms is required by another law, the nature of the business, or by the employer, the cost and maintenance of uniforms is considered the employer’s business expense.  If employees must bear the cost, it may not reduce their wages below the minimum wage or cut into overtime compensation.

Example: If an employee is paid minimum wage ($5.85/hour), the employer can’t make any deduction from the employee’s wages for the cost of the uniform, or require the employee to purchase the uniform on his/her own.  If the same employee were paid 25¢ more than the minimum wage ($6.10/hour) and worked 30 hours in a week, the maximum amount that the employer can legally deduct from the employee’s wages is $7.50 ($0.25 x 30 hours). 

Employers may prorate deductions from the cost of uniforms over a period of paydays, provided the prorated deductions don’t reduce employees’ wages below the minimum wage or overtime compensation in any workweek. 

Other items.  The cost of any items which are considered primarily for the employer’s benefit or convenience have the same restrictions applied to reimbursement requirements as do uniforms — no deductions may be made from employees’ wages which would reduce their earnings below the minimum wage or overtime compensation.  This is true even if an economic loss suffered by the employer is due to employees’ negligence. 

Employers may not avoid FLSA minimum wage and overtime requirements by having employees reimburse them in cash for the cost of these items in lieu of deducting the cost from employees’ wages.

Non-Requirements

The FLSA doesn’t require an employer to provide:

• overtime pay for work done on Saturdays, Sundays, holidays, or regular days of rest;
  
  
• vacation, holiday, severance, or sick pay;
  
  
• meal or rest periods, holidays off, or vacations;
  
  
• raises or fringe benefits;
  
  
• a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees; or
  
  
• a limit to the number of hours employees aged 16 or older may work in a workweek.

Overtime Pay Requirements

Overtime must be paid to non-exempt employees for any hours worked over 40 in a workweek, and at a rate of one-and-one-half their regular rate of pay.

The regular rate of pay used to calculate overtime pay can’t be less than the minimum wage.  Generally, any payment that’s measured by or based on employees’ hours worked, production, or efficiency must be included in wages for purposes of determining regular rates.  The following payments, which aren’t based on hours worked, don’t have to be included.

1. Cash or merchandise gifts, holiday bonuses, and other bonuses paid on special occasions.  For example, employees receive a Christmas bonus of two weeks’ pay and an additional amount equal to one week’s pay for every five years of service.  The bonus doesn’t have to be counted as part of the regular rate, even though employees expect to receive it annually and the amount varies with the level of employees’ pay and seniority.
   
   
2. Discretionary bonuses.  Bonuses paid in recognition of employees’ service during a specific period of time are excluded from the regular rate if the company retains absolute control over whether the bonus will be paid at all and over the amount of the payment until quite close to the end of the bonus period, and the company doesn’t make any promises beforehand to pay the bonus.
   
   Unlike holiday bonuses, if both conditions are met, the bonus can be based on employees’ hours worked, production, or efficiency.
   
   
3. Profit-sharing payments or benefit contributions irrevocably made to a trustee or a third party under a bona fide plan are excluded from employees’ regular rates.
   
   
4. Prizes and awards paid to employees for services outside their normal job duties and outside their usual working hours or away from the employer’s workplace can be excluded from their regular rates.  Prizes based on the quality, quantity, or efficiency of employees’ work during normal working hours must be included in the regular rate.
   
   
5. Holiday, vacation, and sick pay generally aren’t included in employees’ regular rates if the amounts approximate their normal earnings and aren’t paid for hours worked. 
   
   Example: If employees’ vacations begin on Wednesday of one week and end the following Tuesday, the vacation pay doesn’t increase their regular rates when overtime pay rates are calculated.  Payments to employees to forgo their vacations also aren’t included in their regular rates, provided they’re receiving their regular wages for the foregone vacation. 

Earnings may be determined on a piece-rate, salary, commission, or some other basis, but in all cases, the overtime pay due must be computed on the basis of the average hourly rate derived from the earnings.  This is calculated by dividing the total pay (except payments which are excluded from the regular rate) in any workweek by the total number of hours actually worked. 

If employees, in one workweek, work at two or more different types of work for which different wage rates apply, the regular rate for that week is the weighted average of all rates.  That is, the earnings from all the rates are added together and this total is then divided by the total number of hours worked at all jobs.

Public Employees

The FLSA covers employees of state and local governments, and generally, public employers have the same obligations as private sector employers.  One difference: Public employers may pay employees compensatory time of one-and-one-half hours off for every overtime hour worked in lieu of cash for overtime, if there’s an agreement or understanding. 

Employees who work in law enforcement, fire protection, emergency response, and other seasonal activities (e.g., clearing snow in the winter or processing tax returns in the spring) can accumulate up to 480 hours in compensatory time (320 overtime hours worked).  Other public employees can accumulate up to 240 hours of compensatory time (160 overtime hours worked).  Above that, overtime must be paid in cash.

 

Child Labor

The FLSA restricts the hours and jobs at which minors can work.  The FLSA prohibits minors from working in non-approved occupations or during non-approved times.  Students must be at least 14 years old to work.  Those over 16 can work unlimited hours, while 14- and 15-year-olds are limited to working:

• no more than eight hours on a non-school day, and no more than three hours on a school day;
  
  
• no more than 40 hours during a non-school week, and no more than 18 hours a week when school is in session;
  
  
• between 7 a.m. and 7 p.m. during a school week or until 9 p.m. between June 1 and Labor Day; and
  
  
• up to three hours on a school day, and as many as 23 hours in a school week, if they are enrolled in an approved work experience and career exploration program.

The FLSA permits 14- and 15-year-olds to work in office jobs, retail, and food service establishments.  They are not allowed to:

• work in processing, mining, or any workplace where goods are manufactured or processed;
  
  
• work in hazardous occupations involving transportation, construction, warehousing, communications, and public utilities; or
  
  
• operate most power-driven machinery, including lawnmowers, lawn trimmers, and weed cutters.

Fewer restrictions apply to 16- and 17-year-olds.  They may work in any non-agricultural occupation not declared hazardous or detrimental to their health or well-being by the Secretary of Labor, such as operating power-driven machines.

Employees age 17 and older are permitted incidental and occasional on-the-job driving on public roads if no more than one-third of their workday and no more than 20% of their workweek is spent driving.  Other requirements include: the driving must be limited to daylight hours; the minor must hold a valid state license; he/she must have successfully completed a state-approved driver education course; and he/she may not have any moving violations at the time of hire.  Employees under 17 years of age are prohibited from driving in connection with their employment.

You may pay a minimum of $4.25 an hour to workers under 20 years of age during the first 90 calendar days of employment, unless state or local law requires a higher rate.  After 90 consecutive days of employment or the employee reaches 20 years of age, whichever comes first, you must pay minimum wage.

 

Record-Keeping Requirements

Information.  Every covered employer must keep certain records for each non-exempt employee.  No particular form of record-keeping is required, but records must include certain identifying information about employees and data about the hours worked and wages earned.  The following is a list of the basic records employers must maintain.

1. Employee’s full name and Social Security number.
   
   
2. Employee’s address, including ZIP code.
   
   
3. Employee’s sex and occupation.
   
   
4. Time and day of the week employee’s workweek begins.
   
   
5. Employee’s hours worked each day.
   
   
6. Employee’s total hours worked each workweek. 
   
   
7. Employee’s birth date, if younger than 19.
   
   
8. The basis on which employee’s wages are paid (e.g., $5.15 an hour, $206 a week, piecework).
   
   
9. Employee’s regular hourly pay rate.
   
   
10. Employee’s total daily or weekly straight-time earnings.
    
    
11. Employee’s total overtime earnings for the workweek.
    
    
12. All additions to or deductions from employee’s wages.
    
    
13. Total wages paid to employee each pay period.
    
    
14. Date of payment and the pay period covered by the payment.

If employees work on a fixed schedule from which they seldom vary, the employer may keep a record showing the exact schedule of daily and weekly hours and simply indicate that employees followed the schedule.  If employees work a longer or shorter period than the fixed schedule, the employer must record the number of hours actually worked. 

Duration.  Payroll data records must be kept for three years.  Records on which wage computations are based should be kept for two years (e.g., time cards and piecework tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages).  Records must be open for inspection by Wage and Hour Division representatives. 

Time-keeping method.  Employers may use any time-keeping method they choose, so long as it’s complete and accurate.  For example, they may use a time clock, have a timekeeper keep track of employees’ work hours, or have employees write their own times on the records.

Posting.  Employers must display an official poster outlining the provisions of the FLSA, which is available at no cost from any office of the Wage and Hour Division of the Department of Labor.

Penalties And Enforcement

Employers may be subject to the following actions for violating any provision of the FLSA.  Enforcement of the FLSA is carried out by the Wage and Hour Division.  In addition, employees may bring their own lawsuits against their employers. 

The Labor Department has increased maximum civil monetary penalties for violations of the FLSA by 10%.  Willful violations of the minimum wage and overtime requirements can cost as much as $1,100, up from $1,000.  Penalties for willful violations of the child labor provisions have been set at a maximum of $11,000, up from $10,000.  Employers may also be liable for back wages, back overtime, and liquidated damages.

 

 

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