The Fair Labor Standards Act (FLSA) governs how businesses treat and categorize their employees in regards to compensation and hours worked. It was originally created in response to factories employing children to work long hours for little pay at the cost of their opportunities for education, though it has since expanded to address other details as well.
While it includes a variety of provisions, such as rules regarding child labor and mandatory recordkeeping, the most notable and famous of the FLSA standards are surrounding overtime, salaried employees and minimum wage.
Understanding the contents of the FLSA is beneficial to both employees and employers so that they understand their rights. If employers do not properly adhere to FLSA guidelines, they may be subject to legal consequences or retaliation from their employees. Similarly, employees who are not aware of their FLSA rights may be inadvertently taken advantage of or incorrectly treated by their employers.
One of the most relevant and frequently referenced features of the Fair Labor Standards Act is its rules for salaried and hourly employees. Salaried employees are those who are not paid an hourly compensation but are instead paid the same amount regardless of hours worked. It is important that employers categorize their employees correctly to compensate them properly.
In order to qualify as a salaried employee, officially known as an exempt employee, an individual must meet certain requirements. An employer may not simply elect to give someone a salary in lieu of hourly pay; rather, becoming a non-exempt employee requires certain demonstrations of skill or knowledge, as well as an employer’s agreement to pay at a certain frequency and no less. Salaried employees are no longer beholden to a 40 hour work week; they are to be compensated the same amount whether they work less than those 40 hours or more; overtime is not a part of salaried payment.
Any employee making more than $107,432 annually, or $684 per week, is automatically an exempt employee as long as they also possess the skills of an executive, administrative, professional, outside sales or computer employee. Once an employee begins to earn more than $107,432, the employer must evaluate whether they demonstrate the necessary skills to qualify as exempt and move them to that method of compensation if applicable. Similarly, any employee who earns less than $23,000 per year does not qualify to be exempt, regardless of their skill set or education level.
The earnings of the individual do not need to be more than $107,432 annually h to qualify as exempt. Often called the “duties test,” an employee’s duties should also be evaluated to determine if they qualify for a salary instead of hourly compensation. The required duties vary based upon the field of work, but as a general rule, if an employee can demonstrate a high level of responsibility, such as managing others or making decisions that directly and substantially impact the business, or if they possess a high level of education or experience in the field that is unique to that field, such as writing computer code or passing the bar exam, they qualify as exempt employees and may be paid a salary. However, salesmen and individuals who do not conduct the majority of their work directly at the business location typically do not qualify as exempt, regardless of their experience.
Even if an employee is eligible to be exempt, this does not allow an employer to pay their wages once a year. The FLSA guides when salaried employees receive compensation and where it comes from; for example, annual bonuses and commissions cannot account for more than 10% of their compensation. Additionally, the total compensation received by an employee must equal the equivalent of $684 per week or greater.
Under the FLSA, salaried workers receive fewer protections than their non-exempt counterparts. They are not immune from employer demands to make up for time off or to comply with mandatory overtime for no extra pay. The only rules that employers must follow when it comes to compensation of salaried employees is that they are paid the minimum $684 per week, that they are paid in a timely manner and that 90% of their compensation comes from direct and regular payment from their employers rather than unpredictable sources such as a commission from a sale.
One of the biggest differences between exempt employees and non-exempt employees is overtime. When an individual works more than 40 hours per week, they may qualify for overtime pay, but only if they are non-exempt workers. Full-time employees are expected to work a specific number of hours. Employers are required by the FLSA to compensate employees who work in excess of these hours.
Overtime applies to any hours worked above 40 per week. A work week is defined as seven consecutive days, or a continuous, regular period of 168 hours. This standard exists to prevent employers from benefiting from altering the work week. Some businesses may consider a full-time employee to be anyone who works between 32 to 40 hours per week; however, overtime pay according to the Fair Labor Standards Act only applies to work that exceeds that which is done within the 40 hours of the workweek.
As determined by the FLSA, overtime work requires additional compensation. The compensation must be at least one and one half of the employee’s regular pay, creating the term “time and a half”. An employer may elect to pay more than time and a half for overtime work, but they are not permitted to pay less under any circumstance.
Holidays and weekends do not require overtime pay unless the employee has already met their 40 hours per week. The fact that a workday falls on a holiday or weekend does not necessitate overtime, and employers are within their rights to ask their employees to work on these days without overtime pay as long as that employee has not yet reached 40 hours worked in that week.
The Federal Minimum Wage
In addition to salary regulations and overtime stipulations, the FLSA has established the minimum amount that a non-exempt employee must be compensated. Currently, the federal minimum wage is $7.25 per hour. This means that all non-exempt employees, with the exception of tipped employees, must be paid no less than this rate, without exception.
States may elect to establish their own minimum wage amount; if the state’s minimum wage is higher than the federal rate, the employee may be paid the higher rate. If the state’s minimum wage is lower than the federal rate, the employee is entitled to the federal minimum wage. In this way, each employee is guaranteed to earn at least the federal minimum wage even if their state offers a lower amount.
Some types of employees such as waiters are exempt from minimum wage requirements. This category is called “tipped employees,” and employers are permitted to take a “tip credit” and pay workers as little as $2.13 per hour if they then allow those individuals to accept and keep tips from customers. Servers are not the only type of tipped worker; other types of employees who are not legally mandated to earn the federal minimum wage include bellhops, bussers, bar-backs, parking attendants, car washers and nail salon employees.
Seek Legal Guidance About The FLSA
The FLSA is a vital part of employment law that applies to both employees and employers. For employers, the Fair Labor Standards Act will impact how employees are compensated, at what rate and how long they may work at a certain rate. The law also specifies who an employer may hire (for example, children under the age of 14 are typically not employable, and those who are over 14 but not yet 18 must abide by special rules), as well as setting forth requirements for business documentation and recordkeeping, among a variety of other rules. For employers, understanding the Fair Labor Standards Act is a legal matter of compliance.
If you are seeking guidance to understand the FLSA guidelines, contact a legal professional experienced in employment law. The attorneys at KPPB LAW will gladly assist you in your specific situation, outlining the guidelines and your available options. Contact our offices to schedule your consultation.