Fair Labor Standards Act: What Employers Need to Know
Legal LawThe Fair Labor Standards Act (FLSA) of 1938 is a key piece of compensation legislation. Although the FLSA has been around for a long time, it is the most frequently violated employment law. Employers misclassify employees as exempt or do not accurately calculate work time. Misclassifications can lead to serious late payment problems. Miscalculating overtime can often result in over or under pay.
Violations can not only harm companies financially, but also damage their reputations.
FLSA cases have reached a new high and continue to rise. A record 8,126 FLSA lawsuits were filed in federal courts in the past year. Overall, there has been an increase of more than 400% since the year 2000. Employers must be familiar with the intricacies of the law to avoid lawsuits.
What is the Fair Labor Standards Act (FLSA)?
The Fair Labor Standards Act (FLSA) is a federal law that sets minimum wage, overtime pay, record-keeping, and youth employment standards. The FLSA is administered and enforced by the Wage and Hour Division of the US Department of Labor. FLSA has three main goals. These are:
· Set a minimum wage below which the remuneration of workers cannot fall.
· Encourage full employment by setting a maximum number of hours employees can work before an employer must pay an overtime premium.
· Protect working children.
There are a number of employment practices that the FLSA does not regulate. These include:
vacation, holiday, severance pay or sick pay
meal or rest periods, holidays off or holidays
premium pay for weekend or holiday work
pay raises or fringe benefits
a layoff notice, the reason for layoff, or immediate payment of final wages to laid off employees
Scope of the FLSA
FLSA provides two different types of coverage:
business coverage
If a business is covered, all employees of the business are entitled to the protections of the FLSA. Generally, businesses with at least two employees or those that generate business of at least $500,000 a year are covered. Hospitals, businesses that provide medical or nursing care to residents, schools, preschools, and all kinds of government agencies are also covered by the Act.
individual coverage
Even if the business is not covered, individual employees may be covered and are entitled to the protections of the FLSA. In the case of individual coverage, the FLSA covers workers engaged in:
interstate commerce
Production of goods for trade
Closely related process or occupation directly essential to such production (CRADE)
Domestic service
Individuals who work for small construction companies and independently owned retail or service businesses are generally not covered by the FLSA.
FLSA Requirements
The FLSA is a basic regulation that focuses on many areas, from minimum wage to overtime, rules about exempt and non-exempt classifications, child labor, and record keeping. Basic requirements under the FLSA include:
minimum salary
overtime pay
· Registry mantenance
Restrictions on child labor/youth employment
minimum wage requirements
The FLSA requires that covered non-exempt employees be paid not less than the federal minimum wage for all hours worked. According to the FLSA, the federal minimum wage is $7.25 per hour as of July 24, 2009. The minimum wage includes the following payments/allowances:
Wages
commissions
certain bonuses
Tips received by eligible employees
Reasonable cost of room, board, and other “facilities” provided by the employer for the benefit of the employee
Overtime Pay Requirements
The FLSA defines overtime as time worked beyond the prescribed hours. Covered non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over forty in a workweek.
Hours Worked and its Components
Hours worked include all time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace. The main components of hours worked include:
Suffer or allow to work
Wait time
· Travel time
on-call time
Training time
Bedtime
Record Keeping Requirements
Each FLSA-covered employer must maintain certain records for each non-exempt covered worker. Here is a list of basic records that an employer must keep:
· Employee’s full name and social security number.
Address, including zip code.
Date of birth, if under 19 years of age.
· Sex and occupation.
· Time and day of the week the employee’s work week begins.
· Hours worked each day.
· Total hours worked each work week.
The basis on which employee wages are paid.
Regular hourly rate of pay.
· Daily or weekly total earnings in normal time.
· Total overtime earnings for the workweek.
· All additions to or deductions from the employee’s salary.
· Total wages paid in each pay period.
· Payment date and the payment period covered by the payment.
Every employer must retain payroll records, collective bargaining agreements, sales and purchase records for at least three years. Wage calculation records must be kept for two years. This includes time cards and piece work tickets, wage rate tables, work schedules and schedules, and records of wage additions or deductions.
child labor rules
The FLSA’s child labor provisions are designed to protect the educational opportunities of minors. These provisions:
• Prohibit the employment of young people in jobs that are detrimental to their health and safety.
• Restrict the working hours of those under 16 years of age.
• List hazardous occupations too dangerous for young workers to do.
FLSA Minimum Wage and Overtime Exemptions
The most common FLSA minimum wage and overtime exemptions, often called “white collar” exemptions, apply to certain:
Executive Employees
Administrative employees
Professional Employees
Outside Sales Clerks
computer employees
Avoiding the FLSA Pitfalls
Wage and hour claims are increasing rapidly. Employee misclassification is a major area that the US State Department of Labor is clamping down on. The second area that is being investigated is improper overtime pay. Misclassification and overtime pay can lead to important settlements, including back pay, payment of fines, and reclassification. Therefore, employers should continue to comply with the FLSA guidelines and avoid the following pitfalls in wage and overtime calculations:
· Improperly applying an exemption.
Failing to pay for all hours an employee is or is permitted to work.
Limit the number of hours employees can record.
Failing to include all pay required to be included in the calculation of the regular overtime rate.
· Making improper deductions from wages that reduce the required minimum wage or overtime.
Do not add all hours worked at separate establishments for the same employer when calculating overtime due.
· Treating an employee as an independent contractor.