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What is the Fair Labor Standards Act of 1938?

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9 min read
Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) of 1938 establishes a number of employee rights and employer obligations in the US. This includes the right to a minimum wage, overtime pay regulations, and employer record-keeping requirements. It also includes limits to working hours and child labor standards. The act applies to all employees working in the private sector and in Federal, state, and local governments. Failure to comply with any aspect of the FLSA can result in penalties, litigation, and reputational damage.

In this article, we are going to share everything you need to know about the Fair Labor Standards Act. We will discuss the history and the main provisions of the act so that you can ensure compliance in your business. We will also explain how you can establish the FLSA status of your workforce, and break down the differences between exempt vs. non-exempt employees.

Fair Labor Standards Act history and FLSA today

The Fair Labor Standards Act (FLSA) was initially drafted by the 75th United States Congress in 1932. President Franklin D. Roosevelt signed the act into law in June 1938 and it became effective later that year. 

The act was designed with the aim of improving the lives, health and wellbeing of workers and children. This was a landmark statute as, before this time, working conditions were often harsh and unfavorable. Both children and adults would often work long hours in dangerous, unsanitary, or hazardous conditions. The FLSA was designed to serve as a legal framework of standards to address these unacceptable working conditions and provide employees with fair standards of labor. These standards included compulsory wages, safer and healthier working environments, and the protection of children’s right to education.

According to the U.S. Department of Labor (DOL), the FLSA, which is enforced by the Wage and Hour Division of the DOL, now protects more than 143 million US workers. Standards have been expanded to include recordkeeping obligations, a fair minimum wage, and overtime laws. 

These standards are applied to all non-exempt employees, which essentially means all employees who earn less than $35,568 per year on an hourly basis, and who you do not hire to perform exempt job duties. If you fail to correctly classify your employees as exempt or non-exempt it can lead to a number of legal issues. More on what an FLSA exempt status means later in the article.   

Main provisions of the Fair Labor Standards Act

The Fair Labor Standards Act (FLSA) contains five main provisions

These are: 

  • Federal minimum wages
  • Overtime pay
  • Employer record-keeping obligations
  • Limits to hours worked
  • Child labor standards

It’s important to be fully up to date with all these provisions to ensure FLSA compliance. If you don’t comply, then it can lead to sanctions and hefty fines for your business. It’s also important to be aware of any state laws that may establish further employment standards that you need to comply with. For example, some states offer a higher minimum wage than the federal standard, and some provide additional protections for overtime and breaks. If you’re in any doubt, you should consult with a lawyer before you develop and implement your workplace policies.

Before we look at how you can determine an employee’s FLSA status so that you know whether you need to abide by the standards established in the Act, let’s take a look at these five provisions in a bit more detail. 

Minimum wage  

The Fair Labor Standards Act establishes a series of Federal minimum wages, subminimum wages, and related exemptions.

Currently, the federal minimum wages are:

  • $7.25 per hour for covered, non-exempt employees
  • $2.13 per hour for tipped employees
  • $4.25 per hour for workers under 20 during their first 90 days of employment

Many states also have their own established minimum wage laws. For example, the minimum wage in Massachusetts is currently $14.25 per hour, and New York State’s Minimum Wage Act (Article 19 of the New York State Labor Law) will require that all employees receive at least $14.20 an hour from December 31, 2022. Employers must comply with both state and Federal minimum wage laws and pay whichever minimum wage is higher.

Moreover, the FLSA states that you must pay your employees on a regular payday at the end of each pay period. Plus, any deductions relating to fringe benefits or a lack of expense reimbursement must not reduce an employee’s wages below the established minimum rate.

Overtime 

The Fair Labor Standards Act also includes provisions relating to employee overtime. To determine whether or not you need to pay your employees overtime for any hours they work over their contracted working hours you first need to determine what their FLSA status is.

The FLSA recognizes three main categories of exempt workers: executive, professional and administrative. If your employees are categorized as exempt then you have no obligation to pay them overtime or time and a half if they work over their contracted hours in a given week. This is because, as salaried workers, you contract them for the job that they do rather than the number of hours it takes them to do it. 

If your employees are non-exempt then you must pay following the FLSA’s overtime rules. Generally speaking, this will apply to employees who you pay less than $35,568 per year on an hourly basis, and who you do not contract to perform exempt job duties (such as executive duties, administrative duties, outside sales duties, or learned/creative/computer professional duties). Essentially this means that, unless exempt, you must pay employees covered by the FLSA overtime pay for any hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay.

Employer record keeping 

According to the government’s Reference Guide to the Fair Labor Standards Act, the FLSA requires you to keep records on wages, hours, and other items, as specified in DOL record-keeping regulations. You probably already maintain most of this information in ordinary business practice and in compliance with other laws and regulations. You don’t have to maintain these records in any particular form and you don’t have to use a time clock (although they can be a highly efficient way of keeping track of working hours compared to using an Excel timesheet).

The information that you must keep for non-exempt employees includes:

  • Personal information, including an employee’s name, home address, occupation, sex, and birth date if under 19 years of age
  • Hour and day when the workweek begins
  • Total hours worked each workday and each workweek
  • Total daily or weekly straight-time earnings
  • Regular hourly pay rate for any week when an employee works overtime
  • Total overtime pay for the workweek
  • Deductions from or additions to wages
  • Total wages paid each pay period
  • Date of payment and pay period covered.

To ensure tax and FLSA compliance, you should keep these records for a minimum of three years.

Although not a legal requirement, the best way to maintain accurate employee records is to use time-tracking software. It can help you easily collect & verify timesheets and calculate employee wages according to Federal and state laws. 

Hours worked  

The Fair Labor Standards Act includes provisions to control the number of hours an employee works in any given time period

According to the United States Department of Labor, “In general, “hours worked” includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work. Also included is any additional time the employee is allowed (i.e., suffered or permitted) to work.” In other words, you must pay all your employees for all the time they spend working, or the time they are required to be on duty. This applies whether they work at your premises or work remotely. 

The Fair Labor Standards Act (FLSA) also states that any work over 40 hours in a 168 hour period (the average working week) is counted as overtime. This equates to eight hours per day for five days a week. If your non-exempt employees work any additional hours, you must pay them overtime. 

Child labor  

The fifth major provision included in the Fair Labor Standards Act relates to child labor. 

As we mentioned earlier in the post, one of the original objectives of the FLSA was to protect children from working in dangerous, unsanitary or hazardous conditions. This was an important provision because, at that time, many children worked dangerous jobs in manufacturing and mining. 

These days, the FLSA child labor provisions are designed to protect the educational opportunities of minors and prohibit their employment in jobs that are considered detrimental to their health and wellbeing. This includes restrictions on the number of hours children under 16 can work and limitations on the industries in which they can work.

For example, you cannot employ children under 14 years of age to work in non-agricultural occupations covered by the FLSA, and children under 16 years cannot work any hazardous agricultural jobs. What’s more, parents are prohibited from employing their child in manufacturing or mining or in any of the occupations declared hazardous by the Secretary of Labor.

As an employer, if you violate the FLSA child labor provisions you could incur a civil penalty of up to $11,000 for each employee who was the subject of a child labor violation, or up to $50,000 for each violation that causes the death or serious injury of a minor employee.

Changes to FLSA 2022 

There have been a number of changes to the Fair Labor Standards Act since it was first enacted in 1938. That’s why it’s so important for you to keep up to date with the Act to ensure compliance.

There have been a few notable changes to the FLSA in 2022. These primarily relate to increases to the salary threshold for white-collar exemptions, clarification of the role of bonuses, changes to overtime rules, and a rise in the pay level required for highly compensated employees

For example:

  • The standard salary level has risen from the previous pay threshold of $455 per week ($23,600 per year) to $684 per week ($35,568 per year). 
  • Employees who earn less than $684 per week for a 40-hour workweek are now eligible for time-and-a-half pay for overtime work. This applies even if you pay them on a salary (non-hourly) basis. It also applies if they perform job duties that are typically classified as exempt. 
  • The threshold for exemption for highly compensated employees has increased from $100,000 per year to $107,432 per year.
  • Under the new overtime rule, you can use non-discretionary bonuses and incentives such as commissions to satisfy up to 10% of an employee’s standard salary level. This means that your employees who earn bonuses must earn at least $32,011 per year in regular (non-bonus) pay to qualify for overtime exemptions.

Who does Fair Labor Standards Act apply to? 

You should only apply the provisions of the Fair Labor Standards Act to individuals who are legally classified as employees. This means that you do not have to comply with the provisions for any independent contractors that you might hire. However, according to the U.S. Supreme Court, there’s no single rule or test for determining whether someone is an independent contractor or an employee for FLSA purposes.

So, how can you establish the status of someone that works for you? What are the main differences between an independent contractor vs employee in the eyes of the FLSA? 

Essentially, it comes down to three main aspects: behavioral control, financial control and the relationship you have with an individual:

  • Behavioral control. You contract employees to work specific hours, either remotely or at your premises. They use the company’s tools and resources to perform their duties. Contractors usually define their availability (when and where they will work). They also tend to use their own tools (laptops, software, etc.)
  • Financial control. You pay employees an hourly wage or a monthly salary. You withhold tax contributions for employees and provide them with a payslip. Contractors define their own rates and payment terms, and issue invoices for all completed work. 
  • Relationship. Employees develop an employer-employee relationship with a company. If full-time, they are likely to dedicate all working hours to the company. As a workforce, you expect them to perform all work that is essential to the business. Contractors tend to perform short-term, specialized functions. This might be on a temporary basis, for a specific project, or for certain duties on an ad hoc basis. 

You also need to consider the FLSA status of an employee to determine if they are exempt vs. non-exempt.

Fair Labor Standards Act exemptions 

It’s important to establish the FLSA status of all your employees so that you know who is protected by the provisions of the Act.

Let’s take a look at the main differences between exempt vs non-exempt employees.

According to the Fair Labor Standards Act, you need to consider the following factors to determine if an employee is FLSA exempt:

  • How much you pay them
  • The type of work you have contracted them to do
  • The specific responsibilities and job duties that you assign to them

Generally speaking, you should classify an employee as being non-exempt if you:

  • Pay them less than $35,568 per year
  • Pay them by the hour
  • Do not contract them to perform exempt job duties.

Best practices for FLSA compliance 

Let’s finish by taking a look at a few best practices to help you ensure FLSA compliance in your business:

  • Make sure you accurately classify the employment status of all your employees so that you know whether or not they are FLSA exempt. Also, make sure the job descriptions and salaries for exempt employees meet the standards for exemption. And make sure that bonuses and non-discretionary pay don’t account for more than 10% of an employee’s total pay.
  • Review your employee salaries for exempt employees to make sure they are still considered exempt under the new salary thresholds
  • Regularly review your company’s overtime policy and share it with your employees so that they know their rights.
  • Keep up to date with any updates to employment laws in your state. This is important because some states have enacted legislation that differs from the requirements of the FLSA. This includes higher minimum wage standards and greater overtime obligations. If that’s the case in your state, make sure you comply with whichever law has the strictest provisions.
  • Display an official poster in your business outlining all the provisions of the FSLA. This is a legal requirement under the Act. You can download a free copy of this poster from the Wage and Hour Division website. You can also pick one up at your local office.
  • Finally, make sure you maintain accurate and up-to-date records of your employees in line with the requirements of the Fair Labor Standards Act. This includes maintaining payroll records for a minimum of 3 years. This will help you remain FSLA compliant in the eyes of the law.
Cat Symonds is a freelance writer, editor, and translator. Originally from Wales, she studied Spanish and French at the University of Swansea before moving to Barcelona where she lived and worked for 12 years. She has since relocated back to Wales where she continues to build her business, working with clients in Spain and the UK.  Cat is the founder of The Content CAT: Content And Translation, providing content development and translation services to her clients. She specializes in corporate blogs, articles of interest, ghostwriting, and translation (SP/FR/CA into EN), collaborating with a range of companies from a variety of business sectors. She also offers services to a number of NGOs including Oxfam Intermón, UNICEF, and Corporate Excellence - Centre for Reputation Leadership.  For more information or to contact Cat visit her website or send her a message through LinkedIn.

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