Small Business Guide to the FLSA
Employers have a responsibility to comply with Fair Labor Standards Act (FLSA) regulations. Here’s what you need to know about the FLSA.
Enacted in 1938, the Fair Labor Standards Act (FLSA) is a cornerstone of nearly all workplaces in the United States, including countless small businesses. This massive piece of legislation — which governs federal minimum wage, overtime, child labor, and recordkeeping laws — has been amended numerous times since its enactment.
As an FLSA-covered small employer, you have a responsibility to comply with the regulations. We developed this guide to help you meet this obligation.
In this guide, you will find information on:
- FLSA coverage
- FLSA employment relationship
- Minimum wage
- Overtime pay
- Overtime exemption
- Hours worked
- Child labor
- Meal and break periods
- Tipped employees
- Paycheck deductions
- Recordkeeping
- Workplace poster
- FLSA vs. state wage and hour laws
- FLSA tools and resources
- Penalties for noncompliance
FLSA coverage
The first step toward FLSA compliance is knowing whether your small business and employees are covered by the FLSA.
The FLSA has the following 2 coverage categories:
- Enterprise coverage. The business has at least 2 employees and annual sales total of $500,000.
- Individual coverage. The employee’s work regularly involves interstate commerce.
If your small business meets the enterprise criteria or if your employees satisfy the individual requirement, then you must follow the FLSA.
Do not assume that the FLSA does not apply to you because your small business falls short of the $500,000 threshold. As stated earlier, the FLSA covers nearly all workplaces. According to the legal website Nolo, “This is because the courts have interpreted the term interstate commerce very broadly. For example, courts have ruled that companies that regularly use the U.S. mail to send or receive letters to and from other states are engaged in interstate commerce. Even the fact that employees use company telephones or computers to place or accept interstate business calls or take orders has subjected an employer to the FLSA.”
For more information, see:
FLSA employment relationship
The FLSA does not apply if there’s no employer-employee relationship.
For the FLSA to apply, there must be an employment relationship instead of a contractual one. In other words, the FLSA does not apply if there’s no employer-employee relationship. The U.S. Supreme Court has indicated that a number of factors must be considered when determining whether someone is an employee under the FLSA or an independent contractor.
These factors include:
- The permanency of the relationship
- The degree to which the services are integrated in the employer’s business
- How much control the employer has over the work that needs to be done
For more information, see:
Minimum wage
Under the FLSA:
- Nonexempt employees must receive no less than the federal minimum wage, which is currently $7.25 per hour.
- Certain individuals can be paid at a subminimum wage, which is less than the federal minimum wage. These individuals include student-learners, full-time students in retail or service establishments, and workers who have disabilities for the job being performed.
- Employees under the age of 20 can receive a youth minimum wage of no less than $4.25 per hour during the first 90 calendar days of employment.
For more information, see:
Overtime pay
Pursuant to the FLSA, nonexempt employees must receive overtime pay for work hours exceeding 40 in a workweek. The standard overtime rate is 1.5 times the employee’s regular rate of pay.
Additional considerations for overtime pay:
- Only work hours are included in overtime hours. Holidays and paid time off are excluded.
- All of the employee’s wages must be counted when figuring the regular rate of pay, except wages that are specifically excluded under the FLSA. These exclusions include payments made as gifts, certain discretionary bonuses, and payments for employee leave (e.g., holidays and paid time off).
- If an employee works multiple jobs at different pay rates for your company, you must determine the weighted average of those rates when calculating the regular rate of pay.
- Employers can use the fluctuating workweek overtime method for salaried, nonexempt employees whose work hours fluctuate from week to week. This allows the employer to pay overtime at only 0.5 times the regular rate of pay.
For more information, see:
Overtime exemption
The FLSA provides exemptions from overtime pay. Employees who meet the criteria do not need to be paid overtime when they work more than 40 hours in a workweek.
Overtime-exempt employees include:
- Executive, administrative, and professional employees who meet the FLSA’s salary basis and job duties tests
- Computer employees who meet the FLSA’s salary or hourly basis test and job duties test
- Outside sales employees who meet the FLSA’s job duties test
- Highly compensated employees who meet the FLSA’s compensation requirements
For more information, see:
- FLSA Exemptions
- Exemption for Executive, Administrative, Professional, Computer, and Outside Sales Employees under the FLSA
Hours worked
The FLSA says covered nonexempt employees must be paid for all hours worked. Note, as well, that you must pay employees for any work performed for your business if you know or have reason to believe they did the work — even if you did not authorize them to do the work. This is why you should have strong timekeeping protocols for nonexempt employees.
Other factors that may impact hours worked:
- Waiting time
- On-call time
- Rest and meal periods
- Lectures, meetings, and training time
- Sleeping time
- Travel time
- Home to work travel
For more information, see:
Child labor
The FLSA has strict rules for agricultural and nonagricultural employers who hire minors under the age of 18.
The requirements for nonagricultural occupations include the following:
- Minimum age for employment
- Prohibited occupations
- Hours of work and allowed occupations
For more information, see:
Meal and break periods
The FLSA generally does not require meal or break periods. However, the following conditions are relevant to employers who choose to offer meal or break periods:
- Short breaks, usually lasting 5 minutes to about 20 minutes, are paid. These breaks are also called “rest periods.”
- Meal periods, usually lasting at least 30 minutes, are unpaid so long as the employee is fully relieved of their duties during the meal period. If the employee is not fully relieved of their duties, then the meal period is paid.
Additionally, the FLSA requires employers to offer break time and space to nonexempt nursing mothers for the purpose of expressing breast milk, for up to 1 year after the child’s birth.
For more information, see:
Tipped employees
The FLSA has special rules for employers with tipped employees, such as employers in the hospitality and restaurant industries.
FLSA tip provisions:
- A tipped employee is someone who customarily and frequently receives over $30 per month in tips.
- Employers can take a tip credit towards their federal minimum wage obligation.
- Employers can take the maximum tip credit of $5.12 and pay the employee only $2.13 in direct hourly wages if the employee’s tips and the direct hourly wages equal at least the federal minimum wage.
- Businesses can establish a valid tip-pooling arrangement for employees who customarily and frequently receive tips. The tip pool cannot include non-tipped employees.
- Managers and supervisors can keep tips they receive for service that they “directly and solely” They can give a portion of their tips to a mandatory tip pool, but they cannot receive tips from the tip pool.
- Tipped employees must receive overtime pay for work hours in excess of 40 for the workweek.
For more information, see:
Paycheck deductions
In terms of the FLSA, the general rule is that employers cannot reduce an employee’s wages to below the federal minimum wage if the deductions are for items that are primarily for the benefit or convenience of the employer.
For instance, if you require your employees to wear and bear the cost of uniforms that you supply, you cannot reduce their wages to below $7.25 per hour to recoup the cost. You also cannot cut into their overtime compensation to recover the cost of the uniform.
The same principle applies to other items. In other words, you cannot reduce an employee’s federal minimum wage or overtime pay for any item that would be regarded as primarily for the benefit or convenience of the employer.
Keep in mind, as well, that you can make deductions from exempt employees’ salary only in specific circumstances, such as:
- When the employee takes a full day off for sick reasons but have exhausted their paid time off
- Unpaid disciplinary suspensions, in full-day increments
- During the first or last week of employment if the employee does not work the entire week
For more information, see:
Employers cannot reduce an employee’s wages to below the federal minimum wage if the deductions are for items that are primarily for the benefit or convenience of the employer.
Recordkeeping
The FLSA requires employers to keep certain records for each nonexempt employee. These records include:
- Full name
- Social Security number
- Birth date, if less than 19 years old
- Sex
- Occupation
- Day and time of day the workweek starts
- Daily work hours
- Weekly work hours
- Payment basis (such as $12 per hour, $600 per week, or piecework)
- Regular hourly rate
- Daily or weekly straight-time earnings
- Weekly overtime earnings
- Additions to and deductions from wages
- Total wages for each pay period
- Payment date and the pay period covered
You must keep similar identifying information for exempt employees. However, the payroll recordkeeping requirements are a bit different because exempt employees are not paid according to hours worked. Special recordkeeping rules also apply to domestic service workers.
The FLSA dictates how long records should be kept. For example, you must retain payroll records for at least 3 years.
For more information, see recordkeeping:
- Requirements Under the FLSA
- Requirements for Employers of Domestic Service Workers
- Regulations for Nonexempt and Exempt Employees
Workplace poster
Covered employers must post the FLSA Minimum Wage poster in a conspicuous area of the worksite so employees can readily view it. The poster includes the FLSA’s provisions for minimum wage, overtime pay, child labor, tip credit, and nursing mothers. If you have remote employees, you can post the notice electronically, such as via email or the company intranet.
For more information, see:
FLSA vs. state wage and hour laws
Many states have their own wage and hour laws that differ from the FLSA, so make sure you check state law before applying the FLSA. In general, when both the FLSA and state law apply, you must go with the law that is most beneficial to the employee.
The state may have provisions for:
- Minimum wage
- Overtime pay
- Overtime exemption
- Meal and break periods
- Child labor
- Tipped employees
- Paycheck deductions
- Recordkeeping
- Workplace posters
- Payday requirements
For more information, see:
FLSA tools and resources
The DOL offers the following online tools and resources to help employers navigate the FLSA:
- FLSA Advisors for FLSA coverage, employment status, minimum wage, overtime, hours worked, child labor, recordkeeping, and workplace poster
- FLSA “Frequently Asked Questions” Advisor for wages, pay, benefits, overtime, work hours, recordkeeping, notices, and child labor
- Compliance Assistance Toolkit, which includes FLSA reference guide, poster, and fact sheets
- Compliance Resources for Specific Industries, such as grocery stores, professional services, hotels and motels, and retail
- gov, which helps employers understand their employment responsibilities. Including their obligations under the FLSA
Penalties for FLSA noncompliance
Failure to abide by the FLSA can result in the following consequences:
- Investigations by the DOL’s Wage and Hour Division
- Payment of back wages and liquidated damages for unpaid minimum wage and/or overtime wages, if the Secretary of Labor brings suit against the employer
- Payment of back wages, liquidated damages, attorney’s fees, and court costs, if the employee files a private suit against the employer
- An injunction ordering the employer to stop violating the FLSA
- Civil money penalty of up to $1,000 per violation against employers who willfully or repeatedly violate the FLSA’s minimum wage or overtime provisions
- Civil money penalty of up to $10,000 for each child labor violation
- Criminal prosecution and a fine of up to $10,000 for willful violations of the FLSA. A second conviction can lead to imprisonment.
Obviously, it pays to comply with the FLSA. So, consider using this guide as a compliance resource for your small business.
