For small business owners and HR leaders, understanding and adhering to the provisions of the Federal Fair Labor Standards Act (FLSA) is not just a legal necessity; it’s a strategic imperative.
We know staying on top of employment laws can be stressful for small business owners with limited time and resources. However, FLSA compliance is vital for avoiding costly legal issues down the road and cultivating a positive workplace culture that supports your team. This guide breaks down the key aspects of FLSA in clear, actionable language so you can feel confident you are meeting federal wage and hour standards. When it comes to compliance, knowledge truly is power for a small business owner.
What is the Federal Fair Labor Standards Act?
Enacted in 1938, the FLSA was crafted to establish minimum wage, overtime pay eligibility, recordkeeping, and youth employment standards that protect both workers and employers. Its overarching goal is to guarantee fair compensation for employees’ time and labor, cultivating a work environment that is not only in compliance with legal standards but also fosters employee well-being and contributes to organizational success.
In this blog post, we’ll delve into the key aspects of the FLSA and explore why compliance with its regulations is particularly vital for small businesses. From avoiding costly legal pitfalls to nurturing a positive workplace culture, the FLSA serves as a compass for small business owners navigating the complex terrain of employment laws. Let’s unravel the significance of FLSA compliance and its tangible benefits for the backbone of the American economy—small businesses.
What does the FLSA require of me?
The Fair Labor Standards Act (FLSA) sets forth several key provisions that businesses must adhere to around minimum wage, overtime pay, classifying employees correctly, recordkeeping, and much more. Below are some of the primary requirements imposed by the FLSA.
Minimum Wage Laws:
The FLSA establishes a federal minimum wage that must be paid to covered nonexempt employees. As of the writing of this article in November 2023, the federal minimum wage is $7.25 per hour, but it’s essential to check for any updates or changes that may have occurred since then.
Employers are not limited to paying employees on an hourly basis. Employees may choose salary, piecework, commission, or other pay options as long as the employee makes the equivalent of the minimum hourly rate.
Covered nonexempt employees are entitled to receive overtime pay at a rate of at least one and a half times their regular rate of pay for all hours worked beyond 40 in a workweek and can also be referred to as premium pay. Certain exemptions apply to specific categories of employees, such as executive, administrative, and professional personnel.
The FLSA mandates that employees receive overtime wages unless the employee is subject to exemptions from overtime pay eligibility. It cannot be waived by an agreement between your employee and you as the employee like:
- An agreement that working time is only eight hours a day or only 40 hours per week.
- A declaration that no overtime work is permitted or overtime work will not be paid unless authorized in advance.
Employers must pay overtime to salaried nonexempt employees as well as employees paid by the hour. To calculate overtime, here’s an example. First, the employee’s regular hourly rate must be calculated. If the employee is paid salary by the week, the regular rate is calculated by dividing the salary by the number of hours the salary is intended to compensate.
Example: If a nonexempt employee is paid a salary of $800 per week, and the salary is intended to compensate the employee for 40 hours, the hourly overtime rate is $30. If the employee works 45 hours, the employee will earn $593.75 as follows:
Regular Rate: = $800 ÷ 40 = $20
Overtime Rate: = $20 x 1.5 = $30
Overtime: = $30 x 5 hours = $150.00 overtime
Total Earnings: = $800 salary + $150 overtime = $950
If the employee is paid a salary over a period longer than a workweek, the salary must be reduced to its workweek equivalent. For instance, a monthly salary is reduced to its weekly equivalent by multiplying the salary by 12 and dividing it by 52. A semimonthly salary is reduced to its weekly equivalent by multiplying by 24 and dividing by 52.
Child Labor Standards:
The FLSA includes provisions to protect the rights of young workers. It establishes minimum age requirements for employment and outlines restrictions on the types of work, hours, and conditions under which minors may be employed.
Covered employers are required to keep accurate records of employees’ wages, hours worked, and other conditions of employment. These records should be maintained for a specified period and be available for inspection by authorized representatives of the Department of Labor. The burden of proof for records is always on the employer, so be sure you work with an HR team and your payroll company to ensure your employee records, salary rates, overtime rates, and proof of pay are always available. This can be difficult to navigate, but it’s critical to get right to avoid backpay, penalties, and hefty fines. If you would like to learn more about these specific fines and penalties, check out this article.
The FLSA contains provisions addressing equal pay for equal work and prohibiting wage discrimination based on gender. Men and women in the same workplace must be given equal pay for equal work.
Exemptions and Classification:
The FLSA provides exemptions for certain categories of employees, such as bona fide executive, administrative, professional, and outside sales employees, as well as certain computer professionals. Exempt employees are not eligible for overtime pay.
Employers are required to display an official FLSA poster in the workplace, outlining the basic provisions of the Act. This poster informs employees of their rights under the FLSA.
It’s crucial for businesses to carefully review and understand the specific provisions of the FLSA that apply to their operations. Additionally, staying informed about any updates or changes to federal and state labor laws is essential for maintaining compliance. As employment laws may be subject to amendments, it’s advisable to consult with legal professionals or the U.S. Department of Labor for the most current information.
What does FSLA NOT require?
It might surprise you, but FLSA does not require many things that are common benefits for employees today. Here are some of the things it does NOT require:
- Vacation, holiday, or sick pay
- Meal or rest periods (except break periods for nursing mothers)
- Holidays off or vacations
- Premium pay for weekend or holiday work
- Pay raises or fringe benefits
- A discharge notice, reason for discharge, or immediate payment of final wages to terminated employees
- Pay stubs or W-2s
The FLSA does not provide wage payment or collection procedures for an employee’s usual or promised wages or for commissions more than those required by the FLSA. In addition, the FLSA does not limit the number of hours in a day, or days in a week, an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old.
Also, it’s important to NOTE that: The FLSA does not exempt employers from abiding by state and local law. Employers must abide by the law that provides greater protections for employees if both state and federal law apply.
Common Ways Employers are Non-Compliant with FLSA:
Non-compliance with the Fair Labor Standards Act (FLSA) can happen for various reasons, and employers may inadvertently violate its provisions due to factors such as lack of awareness, misunderstanding, or failure to update policies. Here are common ways in which employers may fail to comply with the FLSA:
Misclassification of Employees:
One of the common pitfalls is the misclassification of employees as exempt when they should be classified as nonexempt, or vice versa. Determining the correct exempt or nonexempt status is crucial for complying with overtime pay requirements.
Failure to Pay Overtime:
Employers may fail to pay overtime to eligible nonexempt employees for hours worked beyond 40 in a workweek, either due to oversight, miscalculation, or attempts to avoid additional wage costs.
Some employers may not properly account for all hours worked by employees, including work performed outside of regular working hours. Off-the-clock work can lead to unpaid overtime violations.
Incomplete or Inaccurate Recordkeeping:
Failing to maintain accurate records of hours worked, wages, and other employment conditions can result in non-compliance. Proper recordkeeping is not only a legal requirement but also a fundamental aspect of managing employee compensation.
Failure to Post FLSA Notices:
Employers are required to display an official FLSA poster in the workplace. Failure to post this information can lead to non-compliance issues, as employees may not be aware of their rights under the FLSA.
Unlawful Deductions from Wages:
Employers may make improper deductions from employees’ wages, which can violate FLSA regulations. Deductions that bring an employee’s pay below the minimum wage or that affect overtime pay calculations are particularly problematic.
Equal Pay Violations:
FLSA prohibits wage discrimination based on gender. Employers may inadvertently pay employees of different genders unequally for substantially similar work, leading to equal pay violations.
Failure to Provide Breaks and Meal Periods:
Some employers may fail to provide required breaks or meal periods, particularly for nonexempt employees. State laws may also have specific requirements regarding breaks.
Ignoring State Wage and Hour Laws:
While the FLSA sets federal standards, state laws may have additional or different requirements. Employers must be aware of and comply with both federal and state regulations to ensure full legal compliance.
Failure to Keep Up with Regulatory Changes:
Employment laws, including the FLSA, may undergo changes and updates. Employers who do not stay informed about these changes risk falling out of compliance.
To avoid these pitfalls, employers should regularly review their employment policies, stay informed about updates to labor laws, and seek legal counsel if needed. Conducting regular audits of wage and hour practices can help identify and rectify potential compliance issues before they escalate.
After reading this, you may be uncertain if you’re adhering to federal and state law for properly compensating your employees. If you have any doubts, you might benefit from an HR Risk Assessment completed by our team. To schedule a risk assessment audit, schedule a 15-minute call with us here or take our What’s your HR business Grade quiz here.
**IMPORTANT NOTE: This is an overview of FLSA as of 11/22/2023. Federal and State laws change constantly, so it’s important to seek guidance from an HR-certified expert or employment lawyer to ensure you’ve not missed any changes or compliance that you need to be aware of. The purpose of this blog is to be educational—it does not constitute HR advice.