For employers, the Fair Labor Standards Act (FLSA) is one of the most important laws to understand. While it can seem complex, the basics are straightforward, and getting them right can save your business significant time, money, and risk.
What Is the FLSA?
At a high level, the FLSA is a foundational federal law governing wage and hour practices in the United States. This federal law is designed to protect workers from unfair pay practices and to create consistent minimum labor standards across the country. The Act covers four primary areas: minimum wage, overtime compensation, child labor, and recordkeeping. Each of these components plays a critical role in shaping employer obligations.
1. Minimum Wage- The federal minimum wage is $7.25/hour, but many states and cities require more.
2. Overtime Pay- Most employees, those considered non-exempt, must receive 1.5× their regular rate of pay for all hours worked over 40 in a workweek. It is typically best practice to pay non-exempt employees on an hourly basis.
3. Child Labor- There are strict limits on the types of jobs and the number of hours minors can work to protect their safety and education.
4. Recordkeeping- Employers must keep accurate records of hours worked for non-exempt employees, wages paid, and basic employee information.
While the FLSA sets minimum standards, many states have more protective laws in each of these areas. Employers are always required to apply whichever law is more protective of employees.
Scope of Coverage
The FLSA applies broadly, covering most employers through enterprise or individual employee coverage. Enterprise coverage generally includes businesses with at least two employees and $500,000 in annual revenue, as well as certain organizations, such as healthcare facilities, schools, and government agencies, regardless of revenue.
Individual coverage applies when an employee’s work involves interstate commerce, including handling out-of-state transactions, communications, or goods. Given the interconnected nature of modern business, most employees are likely covered.
Overtime and Misclassification Risks
Under the FLSA, employees are presumed to be non-exempt and entitled to overtime unless the employer can demonstrate that a specific exemption applies. The burden of proof rests with the employer, and exemption status must be based on a careful analysis of both compensation structure and actual job duties. Accurate job descriptions and consistent pay practices are essential to support these classifications.
Common compliance pitfalls often lead to misclassification. These include:
- Treating salaried employees as automatically exempt,
- Relying solely on job titles,
- Failing to reassess classifications as roles evolve, and
- Making improper deductions that violate the salary basis requirement.
Misclassification can carry significant financial consequences: employees may recover back wages, courts may award liquidated damages that typically double the amount owed, and employers may also be responsible for employees’ attorney’s fees.
Because wage and hour claims are often excluded from insurance coverage, the full financial impact is typically borne by the organization. Beyond the legal exposure, misclassification can undermine employee trust, morale, and engagement.
Exempt Status Requirements
To qualify for exemption from overtime, employees must meet the specific requirements for one of the exemptions, which typically require both compensation and duties requirements.
- Salary requirement: Employees must be paid at least $684 per week on a salary basis, meaning they receive a predetermined amount that is not reduced based on the quality or quantity of work, subject to limited exceptions.
- Duties requirement: Employees must perform job duties that meet the criteria for one of the recognized FLSA exemptions.
- At the center of the duties requirement is the employee’s ‘primary duty,’ which is defined as the principal or most important duty performed and serves as the starting point for determining whether an exemption applies.
If either requirement is not satisfied, the employee must be classified as non-exempt and is entitled to overtime pay.
Common Exemptions
Although the FLSA contains numerous exemptions, the most frequently applied are “white-collar” exemptions. These include:
- Executive: Manages the business or a department, supervises at least two full-time employees, and has authority or meaningful influence over personnel decisions.
- Administrative: Performs non-manual work related to business operations and exercises discretion and independent judgment on significant matters.
- Professional: Performs work requiring advanced knowledge in a field of science or learning (learned) or creativity and originality in a recognized field (creative).
- Outside sales: Primarily makes sales and regularly works away from the employer’s place of business. There is no salary requirement for this exemption.
- Computer employee: Performs specialized, high-level computer or IT work meeting specific duties and compensation criteria.
- Highly compensated employee: Earns above a set compensation threshold and performs at least some exempt duties.
Conclusion
Compliance with the FLSA requires careful attention to both compensation practices and the actual duties performed by employees. While the regulatory framework can be detailed, the underlying objective is straightforward: to ensure fair and consistent treatment of workers.
In the end, a proactive approach to compliance is almost always less expensive, and far less stressful, than defending a wage and hour claim.
This article does not constitute legal advice and does not address state or local law.