The 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 calculate work time accurately. Misclassifications can result in serious back pay problems. Calculating overtime incorrectly can often result in overpayments or underpayments.
Violations can not only hurt businesses financially, but also damage reputations.
FLSA cases have reached a new record and continue to rise. In the past year, a record 8,126 FLSA lawsuits were filed in federal court. All in all, there has been an increase of over 400% since 2000. Employers must be familiar with the complexities 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 establishes minimum wage, overtime pay, record keeping, and youth employment standards. The FLSA is administered and enforced by the Wage and Hour division of the U.S. Department of Labor. FLSA has three main goals. These are:
Setting a minimum wage below which employees pay cannot fall.
Encourage full employment by setting a maximum number of hours that employees can work before an employer is required to pay a premium for overtime.
· Protect child workers.
There are a number of work practices that the FLSA does not regulate. These include:
Vacations, holidays, severance pay or illness
Meal or rest periods, holidays or vacations.
Premium payment for weekend or holiday work
Pay raises or fringe benefits
A notice of termination, reason for dismissal, or immediate payment of final wages to terminated employees
FLSA offers two different types of coverage:
If a business is covered, all employees of the business are entitled to the protections of the FLSA. Generally, companies with at least two employees or those that generate business of at least $ 500,000 per 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 law.
Even if the business is not covered, individual employees can be covered and are entitled to the protections of the FLSA. In the case of individual coverage, FLSA covers workers who are engaged in:
Production of goods for trade
Closely related process or occupation directly essential to such production (CRADE)
Individuals who work for small construction companies and independently owned retail or service businesses are generally not covered by the FLSA.
The FLSA is a basic regulation that focuses on many areas, from minimum wage to overtime, to rules on exempt and non-exempt classifications, child labor, and record keeping. The basic requirements of the FLSA include:
Restrictions on child labor / youth employment
Minimum wage requirements
The FLSA requires that covered non-exempt employees be paid at least the federal minimum wage for all hours worked. Under the FLSA, the federal minimum wage is $ 7.25 per hour as of July 24, 2009. The minimum wage includes the following payments / allowances:
Tips received by eligible employees
Reasonable cost of accommodation, food and other “facilities” provided by the employer for the benefit of the employee.
Overtime pay requirements
The FLSA defines overtime as time worked beyond prescribed hours. Non-exempt covered 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 time during which an employee must be on the employer’s premises, on duty, or in a prescribed workplace. The main components of hours worked include:
Suffer or allow to work
Record keeping requirements
Every FLSA-covered employer must maintain certain records for each covered non-exempt worker. Here is a list of basic records that an employer must keep:
Full name and social security number of the employee.
Address, including zip code.
Date of birth, if you are 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 workweek.
Basis on which the employee’s wages are paid.
Regular hourly rate of pay.
· Consecutive daily or weekly total earnings.
· Total earnings from overtime for the workweek.
All additions or deductions from the employee’s salary.
· Total wages paid in each pay period.
Payment date and payment period covered by the payment.
Each employer must keep payroll records, collective bargaining agreements, purchase and sales records for at least three years. Salary calculation records must be kept for two years. This includes time cards and piecework slips, wage rate tables, work schedules and schedules, and records of additions or deductions from wages.
Child labor rules
The FLSA’s child labor provisions are designed to protect educational opportunities for minors. These provisions:
• Prohibit the employment of young people in jobs that are detrimental to their health and safety.
• Restrict the hours that minors under 16 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, apply to certain:
Outside Sales Clerks
Avoid the pitfalls of FLSA
Wage and hour claims are increasing rapidly. Employee misclassification is an important area that the U.S. Department of Labor is cracking down on. The second area being investigated is improper overtime pay. Classification errors and overtime pay can lead to major settlements, including late payments, penalty payments, and reclassification. Therefore, employers must adhere to the FLSA guidelines and avoid the following errors in calculating wages and overtime:
· Improperly apply an exemption.
Failing to pay for all the hours an employee suffers or is allowed to work.
Limit the number of hours employees can log.
Not including all the pay required to be included in the calculation of the regular overtime rate.
· Make improper deductions from wages that reduce the required minimum wage or overtime.
Do not add all hours worked in separate establishments for the same employer when calculating overtime owed.
· Treat an employee as an independent contractor.