Fair Labor Standards Act (FLSA)
Nearly all employers operating in the United States or U. S. Territories have obligations under this statute. Even when “enterprise coverage” is not applicable (most small businesses and charitable/religious organizations), broad application of “traditional coverage” usually results in this law applying to such employment scenarios. Small businesses and not-for-profit organizations are not afforded special treatment. As an example, one of my not-for-profit organization investigations resulted in the payment of substantial back wages and the assessment of a $99,000 civil money penalty. As additional examples, a small carpentry contractor and a small plant nursery paid more than $10,000 in penalty assessments resulting from child labor violations.
The basic provisions seem simple enough; minimum wage, overtime compensation, required records, and child labor.
However, this is an extremely complex law, and its regulations cause employers great consternation.
Many employers encounter difficulties with the DOL Wage and Hour Division because of failure to understand and properly apply key concepts, such as employment relationship, hours worked, and regular rate principles. Additionally, the application of exemptions is a major problem area for employers.
Back wages that are owed are collectible by the DOL through several types of administrative enforcement, and the DOL pursues litigation alternatives when the agency deems such action to be appropriate. Employees may file private suits if they have not been paid back wages under DOL supervision.
Failure to abide by the rules applicable to the employment of minors is very costly. The civil money penalties have increased substantially in recent years. For example, the illegal employment of just one or two minors can result in a penalty of thousands of dollars.
FLSA Overtime Compensation Provisions
Failure to understand and properly apply the FLSA overtime compensation rules (including regular rate concepts) when overtime pay is calculated will result in back wage liabilities. In fact, it is not unusual for an employer to face a "double whammy" (believing that overtime wages have been paid, only to find that - because of failure to apply correct methodology - the regular rate has been increased and overtime premium pay remains owed to employees).
In other instances, the deficiency merely results in additional overtime pay that is owed. This is a less costly type of infraction, as the employer receives credit for overtime paid; but the additional overtime compensation owed is nevertheless an unexpected back wage liability and the employer goes into the Wage and Hour Division database as a violator.
"Comp time" is often applied by employers to nonexempt employees. When this results in the averaging of overtime hours among two or more workweeks (i.e., failure to pay overtime based on each workweek separately), it is not a permitted method of dealing with overtime obligations. Each workweek "stands alone" for overtime calculation purposes, unless an applicable exemption allows an alternative method. However, within the workweek, rescheduling of hours to be worked by employees is an employer prerogative and is not equivalent to "comp time."
The FLSA authorizes public agencies to utilize a compensatory time pay plan. There are restrictions, however.
Certain pay plans lend themselves to inadvertent errors. The arrangement may appear to be beneficial to employees, yet overtime compensation is not being calculated as required by the Wage and Hour Division "Overtime Compensation" Interpretative Bulletin. An experienced FLSA consultant will know how to spot deficiencies and explain to you how to correct them.
The overtime compensation provisions are quite convoluted and most employers will save time and money by conferring with an advisor who fully comprehends the regulatory concepts and principles that must be applied to pay plans. Seeking appropriate assistance enables you or your client to avoid hassles and expenses.
There are many FLSA exemptions. In fact, thirty-nine sections of this law deal with exemptions from the overtime standards. Several of these exemption sections affect a large number of varied occupations; for example, the familiar "white collar" exemptions. Conversely, some of the exemption sections are so precisely worded that they apply to few employees.
If an exemption is to be applied, it is important to make sure that it is valid under the employment scenario. Some of the exemptions have no tolerance (i.e., any nonexempt work during a workweek "defeats" the exemption and overtime pay is owed for that workweek). Other exemptions are much more tolerant of nonexempt activity. An employer's circumstances should be carefully evaluated. Assumptions can lead to great difficulty and costs.
Virtually all employers and their advisors are aware of the "white collar" exemptions (primarily executive, administrative, learned professional, creative/artistic professional, computer professional, and outside sales). These exemptions have widespread application, but misclassifications are common (resulting in back wage liabilities). The "white collar" exemptions, affecting numerous occupations, emanate from only two sections of the FLSA - sections 13(a)(1) and 13(a)(17). These two exemption sections are explained at Code of Federal Regulations Title 29 Part 541. These are not "overtime regulations," they are exemption regulations. The term "overtime regulations" has been frequently and erroneously applied to Part 541 since 2003, in part because the DOL improperly uses that expression in press releases and in its publications.
Caution is necessary in applying these exemptions. Misclassification is very likely unless a thorough study is made of employees' duties and responsibilities. Exemption misclassification is a common cause of back wage liabilities and other repercussions of FLSA compliance failures. Federal contractors are often found in violation of the Service Contract Act or the Davis-Bacon and Related Acts because of FLSA exemption misclassifications (FLSA exemption classification affects whether employees are "service workers" or "laborers or mechanics" under the laws cited above).
On March 7, 2019 the DOL announced proposed regulatory changes, including an increase in the standard salary level requirement and the "highly compensated" annual compensation level test. The final rule was adopted on September 27, 2019, and became effective January 1, 2020.
Courier and delivery services, as well as many other types of employment involving transportation of property or persons, have traditionally applied the "motor carrier" exemption to safety-affecting employees. That FLSA provision was modified by 2005 and 2008 legislation. Now, under certain circumstances, overtime compensation is owed even when the employee qualifies for the motor carrier exemption. Every employer who is claiming the section 13(b)(1) exemption should become very familiar with the current rules. It is no longer adequate to rely on the 1971 regulations and other "guidance" that might be obsolete or lacking in understanding of how the overtime provisions apply to transportation workers.