Fair Labor Standards Act - What Employers Need to Know

The Fair Labor Standards Act (FLSA) of 1938 is key piece of compensation legislation. Although FLSA has been around for a long time, it is the most frequently violated employment law. Employers misclassify employees as exempt or fail to calculate working time accurately. Misclassifications can result in severe back pay issues. Calculating overtime incorrectly can often result in overpayments or underpayments.

Violations can not only hurt companies financially, but damage reputations as well.

FLSA cases have hit a new record high and continue to rise. A record breaking 8,126 FLSA suits were filed in federal courts in the last year. All in all, there has been an increase of over 400% since the year 2000. Employers have to be conversant with the intricacies of the law to avoid lawsuits.

What is Fair Labor Standards Act (FLSA)?

Fair Labor Standards Act (FLSA) is a federal law which establishes minimum wage, overtime pay, record keeping, and youth employment standards. FLSA is administered and enforced by Wage and Hour division of U.S. Dept. of Labor. FLSA has three major objectives. These are:

· To fix a minimum wage below which employees pay cannot fall.

· To encourage full employment by establishing a maximum number of hours employees can work before an employer must pay an overtime premium.

· To safeguard child workers.

There are a number of employment practices which the FLSA does not regulate. These include:

· vacation, holiday, severance, or sick pay

· meal or rest periods, 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

Scope of FLSA

FLSA provides two different types of coverage:

Enterprise Coverage

If an enterprise is covered, all employees of the enterprise are entitled to FLSA protections. Generally, enterprises with at least two employees or those that generate business of at least $500,000 a year are covered. Hospitals, businesses providing medical or nursing care for residents, schools, preschools and all kinds of government agencies are also covered under the Act.

Individual Coverage

Even if the enterprise is not covered, individual employees may be covered and are entitled to FLSA protections. In case of individual coverage, FLSA covers workers who are engaged in:

· Interstate commerce

· Production of goods for commerce

· Closely related process or occupation directly essential to such production (CRADE)

· Domestic service

Individuals working for small construction companies and independently owned retail or service businesses are usually not covered by FLSA.

FLSA Requirements

The FLSA is a basic regulation that focuses on many areas - from minimum wage to overtime to rules about exempt and non-exempt classifications to child labor and recordkeeping. The basic requirements under FLSA include:

· Minimum wage

· Overtime pay

· Record keeping

· Child labor restrictions/youth employment

Minimum Wage Requirements

FLSA requires that covered, non-exempt employees must be paid not less than federal minimum wage for all hours worked. Under FLSA the federal minimum wage is $7.25 per hour effective July 24, 2009. 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 employee's benefit

Overtime Pay Requirements

FLSA defines overtime as time worked beyond prescribed hours. Covered, non-exempt employees must receive one and a 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 the 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 permit to work

· Waiting time

· Travel time

· On-call time

· Training time

· Sleep time

Record Keeping Requirements

Every employer covered by FLSA must maintain certain records for each covered, nonexempt worker. Here is a list of basic records that an employer must maintain:

· Employee's full name and social security number.

· Address, including zip code.

· Birth date, if younger than 19.

· Sex and occupation.

· Time and day of week when employee's workweek begins.

· Hours worked each day.

· Total hours worked each workweek.

· Basis on which employee's wages are paid.

· Regular hourly pay rate.

· Total daily or weekly straight-time earnings.

· Total overtime earnings for the workweek.

· All additions to or deductions from the employee's wages.

· Total wages paid each pay period.

· Date of payment and the pay period covered by the payment.

Each employer must retain payroll records, collective bargaining agreements, sales and purchase records for at least three years. Wage computation records should be retained for two years. This includes time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.

Child Labor Rules

Child labor provisions under FLSA are designed to protect the educational opportunities of minors. These provisions:

• Prohibit youth employment in jobs that are detrimental to their health and safety

• Restrict hours that those under 16 years of age can work

• List hazardous occupations too dangerous for young workers to perform

FLSA Minimum Wage and Overtime Exemptions

The most common FLSA minimum wage and overtime exemptions, often called "white collar" exemptions, applies to certain:

· Executive Employees

· Administrative Employees

· Professional Employees

· Outside Sales Employees

· Computer Employees

Avoiding FLSA Pitfalls

Wage and hour claims are increasing rapidly. Misclassification of employees is one major area that U.S. Dept. of Labor is clamping down on. The second area that is being investigated is improper payment of overtime. Mistakes in classification and overtime pay can result in major settlements including back pay, payment of fines, and reclassification. So employers should remain compliant with FLSA guidelines and avoid following pitfalls in wage and overtime calculations:

· Improperly applying an exemption.

· Failing to pay for all the hours an employee is suffered or permitted to work.

· Limiting the number of hours employees are allowed to record.

· Failing to include all pay required to be included in calculating the regular rate for overtime.

· Making improper deductions from wages that cut into required minimum wage or overtime.

· Failing to add all hours worked in separate establishments for the same employer when calculating overtime due.

· Treating an employee as an independent contractor.

This article is written by a regulatory expert at ComplianceOnline. ComplianceOnline is a Palo Alto-based leading provider of trainings, consulting and advisory services in the Governance, Risk and Compliance space. We also offer customized training courses developed in conjunction with organizations that wish to train large groups of their employees. For more information, please visit www.complianceonline.com