Fair Labor Standards Act (FLSA): What Employers Need To Know

Passed in 1938, the Fair Labor Standards Act (FLSA) establishes standards for minimum wage, overtime pay, child labor, and recordkeeping for covered employees in the private sector and in most federal, state, and local government agencies. The law sought to protect employees from unfavorable work conditions and guarantee them certain rights. The FLSA is administered and enforced by the U.S. Department of Labor’s Wage and Hour Division. 

The FLSA is complex, and its regulations are periodically updated. Failure to follow the provisions of the FLSA can expose employers to risks of penalties and litigation.

Minimum Wage 

Under the FLSA, covered, nonexempt employees are entitled to the federal minimum wage, currently $7.25 per hour, effective July 24, 2009. It’s important to note that many states and local jurisdictions have set up higher minimum wage rates. Where an employee is covered under more than one minimum wage law, they are entitled to the higher rate. 

Some workers receive tips as part of their job. Under the FLSA, and depending on state law, an employer may pay a tipped employee no less than $2.13 an hour in direct wages, providing that: 

• Tips plus the direct wages equal at least the federal minimum wage; 
• The employee keeps all tips; and 
• The employee regularly receives more than $30/month in tips. 

This is often referred to as a tip credit. 

If there is a gap between received tips and direct wages and the hourly minimum wage, the employer must make up the difference. Many states have enacted minimum wage laws specific to tipped employees. Employees are entitled to the more significant benefit under applicable law—local, state, or federal. 

Before an employer can claim a tip credit, they must provide certain information to their employees. This includes the employee’s right to keep all the tips they earn unless employees agree to pool their tips under a valid tip pooling agreement. In March 2018, Congress amended the FLSA to prohibit employers from requiring employees to share tips with the employer, including managers or supervisors, regardless of whether the employer takes a tip credit. Further clarification is available on a DOL Wage and Hour Division Field Assistance Bulletin. 

Overtime Pay 

Under the FLSA, covered nonexempt employees must be paid at least time and one-half times their regular rate of pay for each hour worked over 40 in a workweek. Under the FLSA, a workweek is a fixed, recurring period of 168 hours or seven consecutive 24-hour periods that does not necessarily correspond to a calendar week. While the FLSA requires overtime pay for hours beyond 40 in a workweek, it imposes no limit on the number of hours employees aged 16 or older may work, nor does it require overtime pay for work on Saturdays, Sundays, or holidays. State and local laws may vary. As noted previously, employees covered under multiple laws are entitled to the provisions of the law that provide the more significant benefit – local, state, or federal. 

Recordkeeping Requirements 

Every employer must keep certain records for each worker. No particular format is required for these records. Still, an employer must be sure to include certain identifying information about the employee, dates of the pay period, and wages earned. There are additional recordkeeping requirements for nonexempt workers regarding hours worked, earnings, and any overtime pay, where applicable. 

Employers can use any timekeeping method they choose if it is complete and accurate. An online timekeeping service may be particularly useful in meeting such requirements. 

Child Labor Laws 

Businesses that employ workers under the age of 18 need to be aware of specific requirements designed to ensure that children aren’t performing hazardous work, and that working doesn’t negatively affect their health or education. There are specific restrictions on the number of hours a minor under the age of 16 may work and the types of jobs allowed under the FLSA. The DOL provides a dedicated resource to help employers navigate this issue. Employers should also review applicable state laws on child labor. 

Misconceptions about FLSA 

Employers may have many misconceptions about the actual requirements associated with the FLSA. In fact, there are a handful of employment practices that fall outside these basic standards and are determined by the employer, a collective bargaining agreement, or state/local law. These include: 

• Vacation, holiday, and sick pay 
• Premium pay for hours worked beyond what is required by the FLSA 
• Frequency of payment 
• Full-time versus part-time status 
• Job performance measurements 
• Discharge notices and reasons 
• Fringe benefits 

Understanding the FLSA is an essential part of managing your business, since not complying can have serious and expensive consequences. Working with a knowledgeable labor and employment law attorney as well as an experienced HR compliance professional can help you effectively navigate the FLSA and other pertinent employment laws.