HR 101: The ABCs of the FLSA

Before Franklin D. Roosevelt signed the Fair Labor Standards Act in 1938, about 1/5 of American employees were subject to barbaric working conditions. The legislation initially banned most child labor and required a .25 cent per hour minimum wage. The FLSA’s scope and authority has been expanded as the Act has been updated. It began to address exploitation and hazards in the workplace suffered by adults and children but has grown widely over the years.

The landmark FLSA legislation established the 40-hour workweek and a uniform federal minimum wage. It created work categories of exempt and non-exempt to classify whether workers were eligible for overtime pay. The FLSA defined what overtime wages must be provided and when they must be paid.

Why the FLSA is important

The FLSA vastly limited using children in the workplace to address child labor. Until the early 1900s, the coal mining industry employed “breaker boys,” aged 8 to 12, to break up slate impurities by hand. These children worked 10-hour days, 6 days per week, under hazardous conditions:

• Many children were injured, maimed, or killed by rapidly moving conveyor belts.
• Other children were burned by sulfuric acid.
• Most succumbed to asthma and black lung disease.

The FLSA prohibited employing children under age 16 in mining, a first step to protecting young Americans in the workplace.

 In the cotton industry, mills provided schooling, housing, and stores for families. Children were educated from ages 5 to 12 but were then expected to work in the mill at age 12. Some 5-year-olds were helper workers, earning no pay but assisting their parents. Most children, and their parents, worked 6 days a week, 12 hours per day.

The FLSA prohibited children under 16 from working in the manufacturing industry.

Education takes center stage

Around the turn of the century, education was becoming a priority in the USA. Massachusetts was the first state that required compulsory education of children: by 1918, all states had some form of required primary education. These laws were drafted, in part, to assimilate foreign-born children after mass immigration to the USA in the 19^th and 20^th centuries. Another motivation was to discourage child labor and exploitation.

In 1938 the Wage and Hour Division of the Department of Labor was created to administer and enforce FLSA rules. The Act covers four main areas of employment law:

• Wages
• Employee job classification
• Overtime
• Child labor

Each has been amended and updated over the years to reflect current market conditions.

What is minimum wage?

Under the FLSA, wages must be paid in cash or some other form of negotiable tenders, such as a check or direct deposit, which can easily be converted into cash. Employees must be paid at a minimum of the rate prescribed by FLSA guidance.

At its inception, the minimum wage was .25 cents per hour. Over the ensuing decades, the minimum wage has increased to its current rate of $7.25 per hour.

The minimum wage has not changed at the federal level since 2009. Many states and some cities and counties have enacted their own higher minimum wage standards for workers.

Employees are required to be paid the higher wage in the area where they work if the local laws that are in place are higher than the federal standard.

Are there exclusions to minimum wage?

There are several exemptions to the federal minimum wage guidelines that allow a lower hourly rate to be paid. They include:

Workers with disabilities

The FLSA authorizes employers who receive specific certification from the Wage and Hour Division to pay less than minimum wage for some workers with disabilities.

There are strict limitations to the type of work, type of organization, and wages that are allowed under the law. These also must comply with the standards within the ADA (Americans with Disabilities Act).

Employees under 20 years old in their first 90 consecutive days of employment Although rarely used, full-time students may be paid $4.25 per hour for the first 90 days they are employed, providing they were not hired to displace other workers. This ‘training pay’ reverts to the minimum wage of $7.25 per hour once the 90-day period has been completed.

 Full-time students

The Full-time Student Program applies to workers in:

• Agriculture
• Colleges and universities
• Retail or service providers

After receiving a certificate from the Department of Labor, employers may pay students 85% of the minimum wage per hour. Students are allowed to work a maximum of 8 hours per day; 20 hours per week when school is in session.

When school is out, there is a 40-hour per week maximum. Once the student graduates or leaves school, their wages increase to $7.25 per hour.

Tipped employees

Employers currently may pay tipped workers $2.13 per hour. Guidelines require workers earn a minimum of $30 per month in tips for eligibility. Employers must ensure workers receive more than the minimum $2.13 per hour by calculating their earned tips. If the amount a tipped worker earns in wages and tips does not meet the minimum wage of $7.25 per hour, the employer is required to make up the difference in hourly wage payments.

Student learners

Employers may pay student-learners enrolled in vocational education classes 75% of the minimum wage. The employer must apply for student learner certificates through the Wage and Hour Division to qualify for this program.

Other workers

The FLSA excludes other categories of workers from minimum wage laws. These include employees who are:

• Paid on commission
• Workers in agriculture
• Seasonal amusement or recreational venue workers
• Fishing and maritime occupations
• Babysitters and companions for the elderly

What is employee classification, and exempt versus non-exempt?

The FLSA classifies jobs in 2 ways: exempt or non-exempt. Commonly known as salaried or hourly, the categories outline whether an employee’s job is exempt from overtime pay (salaried) or non-exempt — eligible for overtime pay (hourly).

The Act sets parameters on what jobs are eligible for overtime and which are not. It is important to understand that it is the employee’s job function that is classified. Classification is not specific to a particular employee.

What are exempt workers?

Employees in exempt or salaried jobs must earn more than $23,600 per year ($455 per week).

Salary is not the only threshold for exempt status.

There are additional guidelines. Beyond wages, exempt status is also based on a ‘duties test.’ This involves evaluating:

Type of work

Some positions are classified as exempt. However, seemingly similar positions are not. For example, outside sales are exempt; inside sales are nonexempt. The ‘type of work’ category includes jobs where an employee is paid a consistent wage, regardless of how many hours they work.

Exempt employees are not:

• Docked for hours missed
• Paid based on completed work

Duties tests

A job must fit into one of three categories to be classified as exempt. The categories are executive, professional, and administrative.

Executive

Executive workers hold supervisory or managerial positions. They are responsible for managing people, production, and work product. Their duties test requires that they:

• Routinely supervise two or more employees
• Have management as their primary job function
• Have meaningful input into the job status of others – i.e., the ability to hire, train, assign work, fire, promote, or discipline.

Note: This test is an “and” test. The job must meet the requirements of all three bullets to qualify for the executive exemption.

Professional

Some professions are exempt because of the educational or training level required to perform the work. These include “learned professions” that typically require an advanced degree, such as:

• Accountants
• Architects
• Dentists
• Doctors
• Engineers
• Lawyers
• Pharmacists
• Registered nurses
• Teachers

“Creative professionals” are also exempt, including:

• Actors
• Composers
• Graphic artists
• Musicians
• Some journalists
• Writers

These jobs are exempt from overtime pay because they require imagination, invention, originality, or talent.

Administrative

Administrative employees are also exempt. These workers perform non-manual labor that:

• Directly impacts management or general business operations of the employer or employer’s customers, and
• Involves the exercise of independent judgment and discretion about
  matters of significance

Administrative employees support the operation of the business. These jobs include:

• Accounting
• Advertising
• Human Resources
• IT
• Marketing
• Payroll
• Public Relations
• Other non-manual positions

What are non-exempt workers?

All non-exempt employees are eligible for overtime pay under the FLSA’s guidelines. However, no matter their role, employees who earn less than $23,600 per year ($455 per week) are non-exempt and, therefore, eligible for overtime pay.

If employees’ earnings are less than the minimum threshold, their classification is considered non-exempt, even if they meet the FLSA’s exempt status duties test requirements.

Many states have enacted rules that exceed federal non-exempt wage guidelines. In the event of competing rules, employees must be categorized based on the more generous guidance.

How does FLSA define overtime pay?

Overtime pay is regulated by the FLSA. The FLSA requires employers to pay non-exempt workers one-and-a-half times their regular hourly rate for hours worked in excess of 40-hours within a workweek.

There is no maximum on the number of overtime hours an adult employee can work, provided they are paid minimally at the overtime rate required by federal law. Federal law defines a workweek as any consecutive seven-day period of time. The clock begins and ends during that seven days, rather than Sunday through Saturday or Monday through Sunday.

In some states and municipalities, hours worked in excess of 8 or 10 per day trigger automatic overtime pay, regardless of whether the employee works more than 40 hours per week.

The “7-minute rule”

The 7-minute rule requires employees to be paid in quarter-hour (15-minute) increments. The FLSA sets guidelines for employers on ’rounding’ to the nearest quarter hour. To calculate pay, employers may round down if the employee has worked an additional 7 minutes: they must round up if the employee has worked more than 8 minutes of a 15-minute period.

An employee’s time must be rounded up once they have worked 8 minutes or more of the quarter hour period. As a result, they have earned an additional 15-minutes of pay. ‘Rounding’ does not mean employers can schedule workers an additional 7 minutes (or less) per day — the rule applies to occasional time added to the workday.

What child labor does the FLSA allow?

One of the most critical aspects of the Fair Labor Standards Act is legislating when, and if, children should be allowed to work. The Act outlines age limits, based on work and industry, that have been adhered to for decades. The FLSA prohibits child labor in non-agricultural industries for:

• Under 18 years of age in hazardous occupations
• Under 16 years of age in non-hazardous occupations
• Minimum 14 years of age for some jobs, with limits on hours and working conditions

Some industries and occupations are exempt from child labor provisions. They include children who:

• Work for their parents or an adult in loco parentis (acting as a parent)
• Are performers
• Deliver newspapers
• Work on their family’s farm or agricultural business

The FLSA outlines non-agricultural hazardous occupations that prohibit child labor in any form. These include:

• Establishments that manufacture or store explosives or articles containing explosives
• Coal mining
• Forest fire fighting and prevention
• Timber tract, logging, and forestry service
• Operations of any sawmill, lath mill, shingle mill, or cooperage stock mill
• Operation of power-driven hoisting apparatus
• Operating bakery machinery
• Establishments that manufacture bricks, tile, and kindred products
• Occupations that include wrecking, demolition, and shipbreaking operations
• Establishments with exposure to radioactive substances or ionizing radiations

Minor children can perform agricultural hazardous jobs and occupations if their work is on a farm owned by their parent(s). In some cases, they are also allowed to complete the work on a non-family-owned farm as a student learner.

These duties include:

• Driving tractors, busses, or other farm vehicles
• Using farming machinery and equipment
• Working in grain or other storage facilities
• Handling agricultural and cleaning chemicals

Workers not covered by the FLSA

The FLSA does not cover some workers in any manner. Typically due to the nature of the work they perform, they are classified outside the jurisdiction of the Department of Labor. These include:

• Crews on American ships
• Domestic service workers
• Employees of movie theaters
• Farmworkers
• Local delivery workers
• Media workers, including announcers, reporters, editors, and some engineers
• Taxi drivers, airline employees, and railroad workers

What are FLSA record-keeping requirements?

In addition to administering the law and responding to employee complaints, the Wage and Hour Division sets record-keeping requirements for business. Employers must maintain compliance records that outline each employee’s:

• Status
• Rate of pay
• Hours worked
• Rate paid per hour

In the event of an employee complaint or a regulatory inquiry, employers who are unable to produce records could be subject to fines, penalties, and back-pay requirements. Employers who misclassify employees as exempt from overtime can be subject to similar fines and penalties.

How can businesses comply with the FLSA?

The USA has widely accepted the standard set by the FLSA. Therefore, most organizations do not employ children younger than 16. Make sure to keep accurate payroll records and pay employees any overtime earned in accordance with the regulations in your area.

For most companies, the challenge in compliance with the FLSA is job classification. Determining whether staff members’ jobs are exempt or non-exempt is challenging. To ensure compliance you must accurately determine a job’s exemption status classification.

Business leaders must verify and even update statuses as employees move through the organization. For difficult-to-categorize jobs, look to local Departments of Labor for guidance.

The Act may be old, but it still matters

The Fair Labor Standards Act has protected American workers since the industrial revolution. The Act’s initial legislation prohibited child labor and set minimum wage standards. Still, expanded definitions have since given it a broader scope.

For employees who work overtime, the FLSA requires minimum, meaningful pay for hours worked. The Act requires legitimate reasons for an exemption from paying employees overtime. The FLSA will continue to provide guidance to employers and protect workers in the decades to come.