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Crash Course on the Fair Labor Standards Act

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Crash Course on the Fair Labor Standards Act

In 1938, the Fair Labor Standards Act (FLSA) was implemented to battle the Great Depression. The FLSA set the U.S. standard forty-hour work-week, created a national minimum wage, and universalized the concept of overtime. It’s widely considered one of the defining laws of President Roosevelt’s New Deal.

Today, the FLSA still applies to most private and public employment, and requires employers to pay covered employees who are not otherwise exempt, at least the federal minimum wage and overtime pay. Recently, the FLSA has gained heightened media attention due to the U.S. Department of Labor’s announcement of changes to some of the act’s overtime exemptions.  In order to determine if these changes affect you, you’ll need to understand some basics of the Act. Namely, what the act covers and whether it applies to you.

Who Does the Act Apply To?

The FLSA is estimated to cover more than 130 million US workers in over 7 million workplaces, so the chances are that it affects you in some way. But not all businesses are subject to the requirements of the Act and not all workers are entitled to its protections. The FLSA applies to both private and public employers that are engaged in interstate commerce that conduct business equal to or greater than $500,000 per year. The FLSA also applies individually to certain employees that in interstate commerce or of the production for goods for interstate commerce. These employees may be those who work in transportation, regularly use the telephone or mail for out of state communications, or even those employees who accept and process credit card payments. Any business that employs such an employee will be required to comply with the FLSA even if the employer doesn’t warrant FLSA coverage on its own.

The FLSA covers full-time and part-time employees in both the public and private sectors of the United States. Individual coverage under the FLSA extends to employees but not independent contractors.  An employee is a worker who perform services for the employer, where the employer maintains the right to control what will be done and how it will be done. If the worker is not considered an employee, then they are an independent contractor and are not entitled to the protections of the FLSA.  This determination is NOT related to an individual’s tax identification as an employee, or whether they receive a W-2 or a 1099 from the employer. Just because a worker is categorized as an independent contractor and the employer does not withhold taxes does not mean the worker is considered an independent contractor under the FLSA. Rather, it’s a separate determination that focuses on the actual working relationship between the business and individual, such as (1) the extent to which the employer has control over the employee; (2) the employee’s opportunity to profit from his skill; (3) the amount of individual employee’s investment in facilities and equipment; (4) whether a special skill is required; (5) whether the employment opportunity is a permanent position or not; (6) how important the employee’s skills are to the business; and (7) the degree of independent initiative judgment or foresight exercised by the one who performs the services. The more control the employer holds, the more likely it is that the individual in an employee. Also, if the worker is economically dependent upon the employer they are likely to be considered an employee rather than an independent contractor.

Even if a worker meets the test of being an employee under the FLSA, there are many statutory exemptions that could exempt the worker from the overtime requirements and/or minimum wage provisions of the act. But because such exemptions are narrowly defined under the act, we suggest that you speak to a licensed attorney in order to determine whether you or your employees are exempt.

What Does the Act Cover?

The FLSA establishes minimum wage, overtime pay, recordkeeping, and child labor standards. One of the main pillars of the act deals with limiting the hours a nonexempt employee can work without the employer paying overtime. As a general rule, overtime is paid at one and a half times the regular rate of pay for all hours worked in excess of 40 in a seven-day workweek. This is true even if the employer receives a salary rather than payment by an hourly rate.

As one could imagine, defining what constitutes as work time and what is considered to be compensation is extremely important in ensuring FLSA compliance. Hours worked includes all time an employee must be on duty, on the employer’s premises or at any other prescribed place of work, from the beginning of the first principal working activity to the end of the last working activity of the workday. For example, time that employees spend on-call, training, or waiting/traveling to work may constitute compensable time. There are allowances for uncompensated lunch breaks, but all shorter “coffee breaks” are considered compensable time without a strict and communicated company policy otherwise.

Calculating an individual’s regular rate of pay also holds challenges. The employee’s regular rate includes all remuneration for employment paid to, or on behalf of, the employee, except for sums paid as gifts, payments for special occasions such as holiday, illness, or vacation, retirement benefits, or employer provided grants. Even some bonuses such as annual bonuses calculated as a fixed percentage may be included in calculating an employee’s regular rate. For more information on the specifics of compensable time and rate of pay, speak with a licensed attorney.

Keep in mind that the FLSA does not prohibit employers from requiring employees to work on the weekend, but just limits the number of hours per week an employee should work without overtime pay. The FLSA also does not require employers to offer optional employee benefits and payroll practices such as premium, holiday, or weekend pay, mandatory break periods for employees, annual raises, or pensions. The Act does, however, require that employers pay their employees a minimum hourly rate or weekly salary.

Why It Matters to You.

The FLSA was enacted to ensure that employees are receiving the payments they deserve. Failure by an employer to comply with the statutory requirements can result in back-pay owed to current and former employees from up to three years ago. It’s also important to note that the FLSA contains an anti-retaliation provision, which gives an employee the right to enforce the hour and wage protections. This makes it unlawful for an employer to discharge or discriminate against any employee because such employee has filed a complaint.  If you are an employee who feels that you have been denied your rights, contact us to schedule a consultation with a licensed attorney today.

For employers, it’s equally important to understand the risks associated with not maintaining FLSA compliance. The repercussions for FLSA violations can even bear more serious consequences upon business owners or managers than just shelling out civil penalties and back-pay. The FLSA includes a provision that authorizes criminal prosecutions in the event that an employer or manager willfully and knowingly violates the act. The penalties include a fine of up to $10,000, a prison sentence of up to 6 months, or both a fine and imprisonment. To avoid lawsuits and criminal convictions, it is necessary for employers to keep proper records of employee hours using time and attendance software. It also important to maintain accurate job-duty descriptions and update your employee handbook frequently. If you would like assistance with updating your employee handbook or creating a policy for FLSA compliances, call to set up an appointment today.

Also, stay tuned for our future blog posts discussing the Department of Labor’s recent changes to the minimum salary requirement and the most common FLSA employee exemptions.




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