Overtime Rules and the Fair Labor Standards Act of 1938

The Fair Labor Standards Act (FLSA) of 1938 was one of the signature pieces of New Deal legislature that stands as the law of the land to this day. In its basic form, it established the 40-hour work week and set rules for minimum wages and overtime pay while also regulating child labor. Today its provisions seem both commonplace and commonsensical, but at the time many questioned whether the FLSA helped the economy or instead extended the Great Depression for another decade or more.

The act was a bit controversial as well in that it relied on a pioneering interpretation of the Interstate Commerce Clause of the Constitution as its legal authority; that interpretation remains the law’s legal underpinning to this day, as well as for myriad pieces of subsequent legislation. As for the law’s reach into society, in 1938 it was certainly much easier for a business to operate intrastate only and have no commerce or interaction with any group or person outside the state. Today, however, with the widespread use of telephones and the Internet, almost every business endeavor will have some connection outside its state borders and thus fall under the FLSA. (Curiously, an anomaly in Supreme Court interpretations resulted in a 1922 ruling that Major League Baseball was not involved in interstate commerce, and thus baseball to this day enjoys an exemption from federal antitrust law and could equally argue an exemption from the FLSA, but it doesn’t choose to do so.)

In its simplest form, the FLSA says that a full-time position is one in which the employee works 40 hours in any established seven-day work period, but it does not differentiate between weekend and week days or daytime and nighttime work. Basically, 40 hours are 40 hours, and once an employer works more than 40 hours in a week, she or he must be compensated at one-and-a-half times the normal hourly rate. The FLSA can be superseded by state laws that mandate stricter rules, however, so some states require payment of overtime whenever an employee works more than eight hours in a given day. California is one such state.

Since it is an hourly wage component that is used to calculate overtime pay, some employers have assumed that just paying employees a salary will automatically exempt them from the overtime provision of the FLSA. From the beginning, however, the FLSA anticipated this confusion and set up the twin categories of exempt and non-exempt employees, exempt referring to those who do not qualify for overtime payments. The FLSA also established certain standards for qualifying as an exempt employee based on salary, duties and responsibilities.

Initially, the salary requirement was quite low, in fact just $8,000 a year as recently as 2004 when the FLSA overtime section was updated through the FairPay Overtime Rules (29 CFR Part 541). Regulation of work weeks, minimum wages and overtime pay is carried out by the aptly named Wage and Hour Division (WHD) of the Department of Labor (DOL), and the DOL Web site contains complete information on the FairPlay Overtime Rules, but here let’s look at just what the new exempt employee standards comprise.

Determining exempt status now hinges on two tests, one for salary and one for duties. The salary test is easy: Employees who make less than $455 a week are automatically eligible for overtime pay and must be classified as non-exempt. Those employees making $455 or more a week are then subject to a duties test if they fall into the white-collar areas of administrative, executive, professional, outside sales, and computer professionals. For example, the executive exemption requires that the employee must supervise two or more full-time employees and possess hiring and firing authority. The administrative exemption requires that the employee perform non-manual labor involving the exercise of independent judgment in “matters of significance.” The DOL site lists the full set of requirements for each exempt category.

Like minimum wage, overtime pay is not something that can be waived, and the FairPay regulations clearly state that all blue collar workers are subject to overtime, as are police, firefighters, paramedics and other first responders. Highly compensated employees earning $100,000 or more a year may be exempt if they satisfy at least one of the duties tests in the executive, administrative and professional categories. Also, overtime is overtime, and employers are charged with policing it. The law says that, if an employee clocks in early and is at his or her desk for an extra half-hour, whether working or not, the employee must be paid for overtime. Thus it is the employers’ responsibility to regulate not just the duties of their employees but also the hours they work. Requiring employees to get their supervisor’s permission for overtime and approval for their punching-in-and-out schedule can resolve this matter.

The FLSA does not set a limit on the number of hours an employee 16 years of age or older may work in a week, but it does regulate hours for workers who are 14 or 15 and it also regulates the types of job that may be worked up to the age of 18, when any type of job can be worked. It also sets automatic exemptions for certain types of employees such as interns and newspaper delivery persons. The minimum wage, currently at $6.55 an hour and rising to $7.25 on July 24, 2009, also carries certain exemptions, often depending on state labor laws, for tipped employees and certain seasonal and recreational industries, to cite two examples. Again, there are tests that need to be met to qualify for many of the exemptions. It should be noted, however, that businesses staffed entirely by primary family members are not subject to the FLSA or other labor laws and regulations.

The FLSA also imposes concise recordkeeping requirements on employers, which can be one of your main defenses when faced with complaints, DOL investigations or lawsuits.

Willful violation of the FLSA may result in criminal prosecution and fines up to $10,000. A second conviction may result in imprisonment. Violators of the child labor provisions may be subject to a civil penalty of up to $10,000 per employee. Repeat or willful violations of the minimum wage or overtime provisions of the FLSA may be subject to a civil monetary penalty of up to $1,000 for each violation. Employees also may file private lawsuits for back pay, liquidated damages, attorneys’ fees, and court costs. The secretary of Labor may bring suit as well for back wages and liquidated damages.

What’s being called wage theft—a pattern by certain employers of consistently paying below the minimum wage and ignoring overtime rules—is said to be so pervasive that the state of New York, for one, has set up virtual vigilante citizen committees to police their neighborhood businesses. Modeled after Neighborhood Watch programs, the groups go by the moniker of Wage Watch and are additionally tasked to pamphleteer and spread information about wage and hour laws and how to report violations.

Labor issues are taking the spotlight—some would say going under the microscope—with the new Obama administration in Washington, D.C. It’s always the best idea to stay fully compliant with all wage and hour laws, but with changes expected to come rapidly in the coming months and years, employers and human resources professionals need to stay ever more aware of advances in workplace laws and regulations.

You can rely on Personnel Concepts as “Your Trusted Compliance Partner” to keep you constantly updated on any labor law changes. In addition, Personnel Concepts offers two informative and muscular tools in its FairPay Overtime Rules Compliance Kit and its FLSA Salary Basis Compliance Kit to keep you constantly in compliance with the FLSA.

About the author:
Gary McCarty is a researcher and Web Content Manager for Personnel Concepts.

Note: The details in this white paper are provided for informational purposes solely. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.