FLSA Compliance: A Guide for Employers

Known largely as the “mother of all employment laws,” the Fair Labor Standards Act (FLSA) establishes THE standard for classification of employees (full-time and part-time) across the United States. Additionally, the FLSA regulates such things as minimum wage rates, overtime payments, child labor, and equal rights. Employers must comply with FLSA standards, or face the possibility of severe penalties. 

Minimum Wage Provisions Under the FLSA

Under the FLSA, employers must pay their nonexempt workers a wage of at least $7.25 per hour. Many states have raised the respective minimum wage limits far beyond the federally mandated rate. For instance, residents of Tukwila, WA receive $20.29 per hour. If state standards exceed those of the FLSA, the Department of Labor specifies that employers must pay the higher amount.

Child Labor Laws Under the FLSA

While children as young as 14 can be employed in the U.S., the FLSA prohibits minors under the age of 16 from working more than 18 hours in a school week or working during normal school hours. No one under the age of 18 may work in a hazardous setting.

Employees vs. Independent Contractors

Employers have unique obligations to their employees but not to independent contractors. As of March 2024, the Department of Labor has issued new guidelines regarding how these employees are classified. Specifically, the DOL has laid out six criteria that examine the relationship between the worker and the employer. These criteria must be equally weighted to distinguish contractors from employees. In recent years, the DOL has been cracking down on employers who ignore these classification standards by inducing heavy fines, including payroll taxes and overtime wages going back several years.

Exempt vs. Non-Exempt Employees

Employees may be classified as either “exempt” or “non-exempt.” Exempt employees are not bound by the FLSA’s overtime requirements. Non-exempt employees must be compensated when working more than 40 hours in a workweek. The FLSA dictates that overtime pay must be at least one and one-half times the standard wage.

Tests Used to Determine Whether an Employee Is Exempt

How do you know whether an employee is exempt? The FLSA makes exemptions for those who work in specific administrative, professional, or executive positions. Employers can apply the following tests to pinpoint exempt employees:

  • Salary-Level Test: Employees must make below $684/week
  • Salary-Basis Test: Employees receive the same salary regardless of their hours
  • Duties Test: Employees must perform certain administrative/clerical duties

Exempt workers typically earn a salary, excluding them from overtime pay unless they exceed the current threshold.

The Six Overtime Exemptions

Several exemptions exclude workers from the FLSA’s overtime requirements. The most common overtime exemptions include:

  • Executive Exemption: Employees actively contribute to managing an enterprise
  • Administrative Exemption: Employees perform office/non-manual work
  • Professional Exemption: Employees perform creative or technical work
  • Computer Employee Exemption: Employees perform skilled technical tasks
  • Outside Sales Exemption: Employees make sales away from the business itself
  • Highly Compensated Employees: Employees earn $170,432 per year

You can find a fuller description of these exemptions on the Department of Labor website.

This is also why it’s vital to determine the primary duties of the role. When primary duties fit the above exemptions, it alters the employer’s responsibilities regarding overtime pay.

Anticipated Changes to Overtime Thresholds in 2024

Employees paid $684 per week ($35,548 annually) are exempt under current FLSA guidelines. But a recent proposal would raise this threshold to $1,059 per week ($55,068 annually). This would allow many workers to receive overtime who had not been previously eligible. 

Keep in mind that individual states may set their own thresholds. For example, New York State raised its threshold to $1,124 (or $1,200 for NYC and select counties).

Recordkeeping Requirements

While the FLSA does not have a specific format for record-keeping, it nonetheless requires employers to keep track of each employee’s:

  • Full legal name
  • Social Security number
  • Address (including zip code)
  • Birth date (only if the employee is younger than age 19)
  • Sex and occupation
  • Day of week and time when the workweek begins
  • Worked hours each day
  • Total worked hours each week
  • Basis of compensation (e.g., $10 per hour, $500 per week, “piecework”)
  • Regular hourly pay rate
  • Total daily/weekly earnings
  • Overtime earnings total
  • Deductions from employee’s wages
  • Each pay period’s total wages 
  • Date(s) of payment and pay period covered

All records must be kept for at least three years from the date of the last entry. If an employee is terminated, employers must likewise retain employee identification records for three years from the date of termination.

Penalties for FLSA Violations

Violations of the FLSA can be severe. From 2021 onward, violations of minimum wage or overtime laws can result in $2,074 for each infraction. Violating the child labor standards can result in penalties of $10,000 for each young worker employed in violation of the FLSA. Employers may also be compelled to pay back wages to employees. Repeated violations can even result in imprisonment.

Stay Compliant With HR Help

Adhering to these compliance standards can improve the health of your business and keep your workers engaged. An effective HR team can manage records, process payroll, and maintain compliance. Need some advice on how to handle your HR needs? Contact Focus HR for advice on your small business.

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