The Fair Labor Standards Act of 1938 (FLSA) is a United States employment law that’s designed to protect workers against unfair workplace practices.

It sets out various standards and labor relations and regulations related to worker payments, minimum wage, overtime pay, child labor limitations, and interstate commerce employment.

Passed in 1938, the law has seen several changes and updates. As a business owner, this is one of the most important laws to understand, since it directly affects your employees. 

This guide will help you understand the FLSA and how the regulations apply to your business.  

What is the Fair Labor Standards Act?

The Fair Labor Standards Act (FLSA) is a federal law that sets rules and guidelines that govern employees like:

• Minimum wage standards
• Bookkeeping
• Child labor laws
• Overtime pay 
• And more 

The FLSA applies to enterprises that are engaged in interstate commerce, produce goods that are involved in interstate commerce, or sell, process, or work on goods that are produced or moved for interstate commerce. 

This is a pretty broad definition, as most types of businesses will fall under this umbrella. 

Who is covered under FLSA?

FLSA specifies when employees are on the clock and will be paid, as well as which times won’t be paid hours. 

FLSA applies to employees of businesses engaged in interstate commerce or are producing goods for commerce. 

Other covered employees, small businesses, and private sector businesses include:

• Domestic service workers
• Educational institutions, including preschools 
• Schools for the gifted, mentally or physically disabled

Employers that have an annual gross volume of sales or total business transactions over $500,000 also must adhere to FLSA. 

Employees who work for companies that don’t fall under the FLSA may still be protected with overtime pay, minimum wage, recordkeeping, and child labor laws. 

This includes workers who:

• Regularly use the mail
• Work in the communications or transportation field
• Keep records of interstate transactions
• Telegraph interstate transactions
• Ship or receive goods between states
• Cross state lines as part of your job
• Do any kind of work for companies engaged in interstate commerce

Even if employees are not engaged in interstate work, they can still be covered under FLSA if they’re working as housekeepers, cooks, full-time babysitters, and chauffeurs, if they meet the following requirements:

• Work more than 8 hours per week for an employer
• Cash wages from an employer are at least $1700 in a calendar year

However, FLSA does not apply to independent contractors, since they’re not employees of the company. 

Fair Labor Standards Act guidelines

The FLSA is detailed legislation, below you’ll learn about the main parts of the act and how they apply to your business.  

Minimum wage

The federal minimum wage provisions effective July 24, 2009, is $7.25 per hour. However, different states and local governments also have their own minimum wage laws. 

Some states offer greater minimum wage compensation and greater protections, so as an employer you’ll need to adhere to both state and federal requirements. 

Different exemptions will apply for youth and minors, students, disabled workers, and tipped employees.

Minimum wage and tipping

If such an employee retains all tips and regularly receives more than $30 per month in tips, the employer can’t pay less than $2.13 an hour in direct wages. If the employee’s direct wages, plus tips, don’t meet the federal minimum wage requirements, then the employer must make up the difference. 

There are also individual state laws regarding tipped employees. The employee is entitled to whichever law (state or federal) provides greater benefits. 

Check out our Employee Benefits Guide for Small Business

Youth employment

The child labor provisions in the FLSA are designed to protect minor’s health, well-being, and educational opportunities and prohibit the employment of minors in jobs that will negatively impact these. 

Some child labor provisions include:

• The hours of work for a minor under 16
• Prohibited occupations that are too dangerous for minors to perform
• Youths 18 and older may perform any job for unlimited hours
• Minors 16 and 17 may perform any non-hazardous job for unlimited hours

Minors who are 14 and 15 may work outside of school hours in non-mining, non-manufacturing, and non-hazardous jobs, for no more than 18 hours in a school week, 8 hours on a non-school day, or 40 hours in a non-school week

Some special child labor provisions do allow minors age 14 and 15, who are enrolled in approved Word Experience and Career Exploration Programs to work up to 23 hours per week during the school week, and three hours per day on school days. 

The minimum working age for most non-farm work is 14. However, minors can begin work at any age doing the following:

• Delivering newspapers
• Performing in radio, theater, television, or movie productions
• Working for parents in non-farming businesses
• Gather evergreens and make evergreen wreaths

Overtime pay

The hourly overtime pay rate must be at least one and one-half times the regular hourly pay of the employee after the employee has exceeded the maximum number of allowable hours worked. Overtime pay begins once an employee has worked over 40 hours in a week. Employers are welcome to be generous, however, they must meet the minimum requirement. 

Here are a few examples to illustrate how overtime pay is applied:

Hourly rate

Hourly rate is the regular rate of pay an employee receives for an hour of work. If the employee works overtime, then they’ll be paid at a rate of 1.5 times as much as the standard hourly wage for all overtime hours.

So, if that employee is regularly paid $10.00 per hour, their overtime pay will be $15 per hour, for every hour that’s worked over 40 hours. 

Piece rate

Piece rate is when employees are paid based on the unit performed or pieces they complete, instead of an hourly rate. The piece work overtime rate is the same rate as the hourly rate, so one and a half times what the worker would typically get.

For example, if an employee typically gets $600 per week, and works 40 hours per week, the regular hourly rate would be $15 per hour. If they work an additional 5 hours of overtime, then they would receive an additional $7.50 an hour, so the total pay for a 45-hour workweek would be $722.50.

Another way to compensate workers getting paid on piece rate is by agreeing on an overtime rate before work is performed. 

Salary

Salary is the monetary amount paid for a regular or specified number of hours. The overtime for a salaried role is the same rate of 1.5 times the regular hourly rate for any hours worked over 40. 

The regular rate is found by dividing the total weekly salary by the number of hours worked. For example, if a person’s weekly salary is $1000 per week, at 40 hours per week the hourly rate would be $25. So, if the salaried employee works an additional 10 hours they would earn an additional $12.50 per hour, on top of the standard rate, bringing the standard and overtime rate to $1375 for the week. 

Regarding salary, the hourly breakdown can’t be less than the minimum wage rate required by FLSA. 

Equal pay

The equal pay guidelines of FLSA prohibit gender-based wage differences between men and women who perform the following: 

• Employed by the same company
• Perform job that requires the same skill, responsibility, and effort
• Jobs are performed in similar working conditions

Joint employment

A new rule regarding joint employment was added to the FLSA in March 2020. This new rule covers employees who are the joint employees of two different companies. 

Both companies can be liable for FLSA requirements, so the new policy lays out what constitutes a second company and the liability this company has.

FLSA exemptions

In some circumstances, employees will be exempt from overtime pay provisions or minimum hourly wage provisions. 

Exemptions are clearly defined in the FLSA based on specific business-types and employee occupations. So, employers should read the guidelines carefully before determining whether or not workers are exempt. 

Typically, bona fide professionals, such as those in managerial, sales, or supervisor roles are exempt due to the job role, but it’s not always the case. 

Here are some examples that illustrate these exemptions, however, it’s not an exhaustive list.

Minimum wage and overtime pay exemptions

The following types of employees are exempt from overtime and minimum wage restrictions:

• Certain employees of seasonal establishments like, recreation, newspapers, a seaman on overseas vessels, fisherman, and newspaper delivery
• Outside sales employees and certain computer-related occupations
• Executive and administrative employees, including academic employees
• Farmworkers employed on farms who use less than 500 man-days per calendar year
• Those employed as companions to the elderly, or babysitters

Overtime pay exemptions

The following employees are exempt from overtime pay in certain circumstances:

• People employed by retail and other service businesses
• People employed by railroads, air carriers, taxi drivers, and American seamen occupying certain vessels 
• Local delivery employees who are paid on a trip rate
• Workers in auto, trailer, truck, farm, boat, or aircraft sales
• Auto mechanics and clerks selling auto parts who are employed by non-manufacturing businesses 
• Workers of certain broadcast stations, including, news editors, announcers, and chief engineers
• Service workers who are living in their employer’s residence
• Farmworkers
• Movie theater employees

Partial overtime pay exemptions can apply to employees working in certain bulk agricultural operations or for bulk petroleum distributors can be exempt

Recordkeeping

The FLSA requires employers to keep records on employee hours spent working, wages, and more. 

Here’s a quick look at the information you’ll need to keep in your records or have human resources handle:

• Personal information of employees under 19 including, name, address, birth date, and gender
• The hour and date when the workweek beings
• The total number of hours worked each workday and workweek
• The weekly or daily earnings at the standard pa rate
• The regular hourly rate of pay and overtime pay rate
• The total overtime pay for the workweek
• Deductions or additions that have been made to wages
• The total wages paid during each pay period
• The date of the payment and the dates of the pay period

Note that if there are any non-exempt employees, then these records will differ from those who are nonexempt. For example, if you have employees who meet the following criteria you’ll need to keep different records:

• Employees who work from home or remote
• Employees who have nonstandard pay agreements
• Employees who have facilities or lodging furnished by the company
• Employees who are currently receiving remedial education

Nursing mothers

The Patient Protection and Affordable Care Act (PPACA), specifies that employers must provide breaks for nursing mothers.

Employers must provide a reasonable break of time for an employee to express breast milk for one year after the child’s birth. The employer must also provide a place other than a bathroom, that is free from coworker intrusions and public view. The space can be temporary, provided that it’s private and made available when needed by the nursing mother. 

The frequency and time of the breaks are flexible, depending on the needs of the mother. 

Required posters

Under the FLSA it’s a requirement to display posters of employee FLSA rights on a poster in the workplace. Even if the number of employees is small posters must be displayed in a prominent area. If you have current employees that work online or fully remote, you can send them electronic versions of the posters. 

Enforcement

There are a variety of different methods for enforcing the FLSA act. Complaints can also be submitted via The Department of Labor website at dol.gov.

Investigation enforcement

Enforcement of the FLSA is done via investigators across the country. The Wage and Hour Division (WHD) of the U.S. Department of Labor conducts the investigations into hours worked, wages, and other conditions to determine if the company is compliant with the law.

These investigations can be conducted regardless of the immigration status of the employees and workers.

If there are any first-time violations found, then changes will be recommended to bring the business back into compliance. 

Legal & law enforcement

The FLSA allows employees, or the Department of Labor, to recover back wages where overtime or minimum wage violations exist. Generally, there is a two-year statute of limitations to the recovery back liquidated damages or back wages.

However, there is a three-year statute of limitations that applies to cases that involve willful violations of the FLSA. There are a variety of ways to recover wages including litigation, criminal prosecution, or administrative work. 

Litigation procedures

Here are some of the litigation procedures the DOL can act out to recover back wages:

• The Department of Labor may file a suit on an employees behalf for back wages, liquidated damages, and civil penalties
• The Department of Labor can seek a U.S. District Court injunction when violations of the law occur, including the withholding of minimum wage and overtime, failure to keep records, or if a business retaliates against employees who file complaints
• The DOL can seek payment for civil money penalties from a DOL Law Judge
• Employees can also file private suits to recover back wages, plus attorney, and court fees. If an employee files a private suit, then the DOL won’t pursue the recovery of back wages on the employee’s behalf

Administrative procedures

There are a variety of administrative procedures the DOL can act out to recover back wages:

• The Department of Labor can supervise the payment of unpaid overtime work or minimum wages that are owed to employees
• The Department of Labor can seek out settlements for back wages and liquidated damages
• Repeat violations of overtime compensation and minimum wage requirements, or child labor violations can lead to civil money penalties 
• If the violation is found to be willful, or the offenses are repeated, then civil money penalties will occur on top of back wages