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Fair Labor Standards Act (FLSA) – Definition & Employee Protections

Millions of Americans in the workforce today started out earning minimum wage. Millions more still do.

According to the Bureau of Labor Statistics, about 1.6 million people — 1.9% of all hourly workers — were paid at or below the federal minimum wage of $7.25 in 2019. However, that figure substantially undercounts the total number of American minimum wage earners because many states and localities enforce higher minimum wages.

Living on minimum wage is challenging, especially for workers with children and other dependents. Indeed, for most people, the minimum wage is not a living wage at all, even assuming full-time work. Many economists believe there’s a strong case for raising the federal minimum wage well above where it is today.

Minimum Wage Laws Exist Because of the Fair Labor Standards Act

But any minimum wage is better than no minimum wage at all. The 1.6 million workers who currently earn federal minimum wage (or less) would likely earn even less if there was no such backstop.

To what do American workers owe this wage protection? The Fair Labor Standards Act of 1938 (FLSA), a seminal piece of legislation that, per the U.S. Department of Labor, “establishes minimum wage, overtime pay, recordkeeping, and youth employment laws and standards covering employees in the private sector and in Federal, State, and local governments.”

Most individuals who work or operate businesses in the United States are affected by the Fair Labor Standards Act in some way. Workers and business owners are also impacted by periodic changes to the law, including a major (and controversial) revamp of overtime rules in 2016.

It’s worth your while to have at least a passing familiarity with FLSA because it almost certainly protects or constrains your economic activities — whether you know it or not.


What Is the Fair Labor Standards Act?

Here’s a quick overview of the history and purpose of the FLSA, plus major changes since the law’s inception.

Background

In 1932, during the throes of the Great Depression, Senator Hugo Black (D-AL) proposed a progressive forerunner to the FLSA. The cornerstone of Black’s proposal was a 30-hour workweek, which proved politically unworkable, and the proposal went nowhere.

As the Depression wore on, political will grew for a more moderate — but still monumental — labor protection statute. In 1938, Congress finally passed the Fair Labor Standards Act. President Franklin D. Roosevelt, who signed the measure, called it a cornerstone of his New Deal reforms.

Initially, the FLSA directly affected fewer than 1 million workers. Its major features included the standardization of the 40-hour workweek and eight-hour workday; time-and-a-half overtime for certain workers who work more than 40 hours per week; the establishment of a federal minimum wage; and new restrictions on child labor, including prohibitions on children under age 16 working during school hours and children under age 18 holding certain dangerous occupations.

Portal-to-Portal Act

Enacted in response to a labor-friendly U.S. Supreme Court decision, the Portal-to-Portal Act of 1947 required employers to compensate FLSA-covered employees for all work performed for the employer’s benefit, regardless of when it occurs.

However, the Act stopped short of covering incidental employee activities such as travel to and from the workplace or work site.

Major Amendments and Rule Changes Through 1967

In the two decades following the end of World War II, the FLSA was amended several times.

These amendments served to strengthen or clarify existing provisions of the act — for instance, raising the minimum wage, establishing new prohibited activities for minor employees, and extending some or all of the law’s provisions to new classes of employees, such as retail employees.

A 1961 amendment established a new framework for defining enterprises covered under the law. This framework, based on both enterprise revenue and function, dramatically expanded the number of organizations covered by the FLSA.

The Equal Pay Act of 1963 was equally impactful because it forbade employers from compensating employees unequally solely on the basis of gender. It also established legal recourse for employees disadvantaged by gender-based pay discrepancies.

The Age Discrimination in Employment Act of 1967 established comparable protections for workers aged 40 and over, although it only applied to enterprises with more than 20 employees.

Major Amendments and Rule Changes Through 1989

Through the 1970s, the federal minimum wage was periodically raised to keep pace with high inflation rates.

The next significant legislative amendment to the Act came in 1983, with the Migrant and Seasonal Worker Protection Act (MSWPA). The MSWPA extended certain FLSA protections to agricultural workers and created an enforcement system that bound farm employers, which had previously been largely exempt from the FLSA.

In 1985, a significant legislative amendment gave state and local government employers discretion to compensate employees with paid time off (compensatory time off) in lieu of overtime pay, provided the paid time off was compensated at time-and-a-half.

It also exempted state and local governments from overtime pay rules when overtime work could reasonably be defined as “sporadic” and substantially different from employees’ regular duties.

In 1986, a further legislative amendment created a minimum wage waiver system that allowed employers to pay less than minimum wage to certain classes of employees, including teenagers and the cognitively impaired. A separate 1986 act eliminated overtime pay requirements for federal contracts.

Major Amendments and Rule Changes Through 2015

Other than periodic minimum wage increases, the next significant amendment to the FLSA came in 1996, with the Small Business Job Protection Act.

While raising the minimum wage for most employees, the act loosened minimum wage protections for tipped employees — freezing the federal minimum wage for that class at $2.13, where it remains today. Previously, employers were required to pay tipped employees at least 50% of the current federal minimum.

In 2004, a notable administrative rule change reclassified millions of supervisory employees, including relatively low-paid restaurant and retail managers, as “executives.” The affected employees were exempted from hours-worked and overtime pay requirements.

A mirror-image change benefited employees whose exemption from those requirements had previously been based on job title, not job function. For instance, entry-level “account executives” and “account managers” were no longer considered executive or managerial, as they had no formal management responsibilities. Such employees were then entitled to hours-worked and overtime pay protections.

The Patient Protection and Affordable Care Act (Obamacare), enacted in 2010, included some labor-related protections. The most notable was a requirement that employers provide break periods for nursing mothers to breastfeed or express milk.

2019 Overtime Rule Change

The most recent rule change of substance came in 2019 when the Department of Labor (DOL) announced sweeping changes to overtime pay regulations. The changes, referred to colloquially as the “final rule,” officially took effect on January 1, 2020.

Most importantly, they significantly raised the compensation thresholds (hourly and annual pay) that employees must meet to be considered exempt from hours-worked regulations, entitling 1.3 million more workers to overtime pay, per the DOL.

They also established a system for automatically increasing exemption thresholds every three years to keep pace with inflation.


Employers Bound by FLSA

Although the FLSA covers most commercial and noncommercial enterprises operating in the United States, not every business is bound by its rules.

Under the law, a “covered enterprise” is defined as “the related activities performed through unified operation or common control by any person or persons for a common business purpose.”

To be bound by the FLSA, covered enterprises must meet at least one of the following criteria:

  • Have annual gross sales or “business done” volume of $500,000 or greater, not including retail excise taxes
  • Be engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises; a school for mentally or physically disabled or gifted children; a preschool, an elementary or secondary school, or an institution of higher education (whether operated for profit or not for profit)
  • Be a public agency or an “activity” thereof

Additionally, firms that do not meet the technical definition of “covered enterprise” are still bound by the law’s minimum wage, overtime pay, child labor, and recordkeeping provisions if they’re engaged in interstate commerce or the production of goods for interstate commerce.

Firms covered by the FLSA before March 31, 1990, when the $500,000 sales rule went into effect, remain bound by its child labor, recordkeeping, and overtime regulations.


Major Components of the FLSA

The Fair Labor Standards Act itself is more than 60 pages long. (You can see the full version, as amended, courtesy of the DOL’s Wage and Hour Division here, and view an abbreviated guide here.) Its primary components include:

Hours Worked (Hours of Work While on the Job)

The FLSA exhaustively defines “hours worked,” a concept that informs many of its other key provisions. Specifically, this part of the act examines situations in which employees are not actively engaged in core duties, but can nevertheless be said to be working.

Such situations include idle time while waiting (for instance, paramedics sitting in their vehicle between calls), on-site call (for instance, a hospital physician required to remain on the premises for a defined shift, regardless of workload), and short breaks during working hours (but not meal breaks of 30 minutes or longer).

Other situations covered include sleep periods during long shifts (for instance, long-haul truckers who cannot safely or legally complete their routes without an extended sleep break), required professional development or training during working hours, and short- and long-distance travel during working hours or as part of regular working duties (for instance, making deliveries in a personal vehicle or traveling between work sites, but not commuting to and from work in the morning and evening).

Minimum Wage

The FLSA sets the federal minimum wage for covered employees. The federal minimum wage has risen considerably since the act’s inception.

Per the Department of Labor, the original minimum set in 1938 was just $0.25 per hour. By 1961, it was $1.00; in 1991, it passed the $4.00 per hour mark for the first time. Since 2009, it has been fixed at $7.25 per hour.

In states and localities with higher minimum wages — such as Seattle, where the minimum wage is set at $15 per hour — employees must earn the prevailing local wage.

Overtime Pay

Under the FLSA, employers are required to pay employees time-and-a-half for any work performed over the standard 40-hour-per-workweek limit. For instance, an employee who earns $15 per hour and works 45 hours in a single workweek must be paid $15 for the first 40 hours and $22.50 for the last five.

The Department of Labor defines “workweek” as “a period of 168 hours during seven consecutive 24-hour periods [that] may begin on any day of the week and at any hour of the day established by the employer.”

When calculating hours worked for overtime purposes, employers cannot average employee time over time spans greater than one week, even if they follow biweekly or monthly pay periods.

Child Labor

The FLSA has an extensive and complicated set of provisions designed to protect minor employees. According to the Department of Labor, these “were enacted to ensure that when young people work, the work is safe and does not jeopardize their health, well-being or educational opportunities.”

Child labor regulations vary significantly by occupation and industry. The Wage and Hour Division has an exhaustive resource here.

Recordkeeping

The FLSA’s compliance regime requires employers to keep accurate records for each covered (nonexempt) employee.

These records include information such as basic demographic data, the workweek start and end date, pay rate and basis (for instance, per hour or week), daily hours worked, regular-time earnings (earnings at the regular rate of pay), overtime earnings (typically one-and-a-half times regular pay), wage deductions or additions, total employee take-home pay, payment date, and pay period dates.

Employers are required to keep records stretching back at least two years, sometimes longer.

Employers are also obligated to post official FLSA compliance information — including information on how employees can file a complaint under the law — in a high-traffic area, such as a break room or kitchen.

Other Provisions

The FLSA has some other important provisions that don’t neatly fit into the categories described above.

For instance, employers must accommodate nursing mothers who need to express milk during their shifts, and industrial employers are prohibited from assigning certain types of “industrial homework” (such as fabricating apparel) without proper certification.

Issues Beyond the Scope of the FLSA

There are many employment practices that the FLSA does not regulate or require. For instance, the FLSA takes no position on:

  • Paid time off for vacations or holidays
  • Paid sick leave
  • Severance pay and other issues related to employee termination
  • Premium pay for work performed outside the normal workday, such as weekend, evening, or holiday work
  • Employee benefits
  • Total number of hours worked in a workweek

Local, federal, and state laws may govern employer responsibility and employee eligibility for these and other matters not covered by the FLSA.


Who’s Covered: Employees vs. Independent Contractors

The FLSA only protects workers who meet its definition of “employee.” Independent contractors — freelancers, consultants, sole proprietors, and others — can rely on other legal protections, such as those governing intellectual property and contract enforcement.

However, they’re not considered employees under the FLSA and therefore aren’t afforded the same protections as traditional employees.

In most cases, workers know which side of the employee-contractor divide they stand. However, the lines between these classes blur more often than you think, and the fact that you’ve signed a contract defining you as an employee or independent contractor is immaterial to your actual status.

In other words, don’t take your employer’s word for it.

The Employer-Contractor Test

If you’re not sure whether you’re an employee or independent contractor, refer to the DOL Wage and Hour Division’s Fact Sheet 13.

Fact Sheet 13 stipulates that “workers who are economically dependent on the business of the employer, regardless of skill level, are considered to be employees, and most workers are employees,” whereas “independent contractors are workers with economic independence who are in business for themselves.”

However, Fact Sheet 13 also stipulates there is no single test for determining whether an individual is an employee or independent contractor for purposes of the FLSA. The matter turns on six key questions, none of which is independently determinative:

  1. Are the Worker’s Duties Integral to the Business? Workers whose duties are part and parcel with the enterprise’s business activities are more likely to be considered employees. For instance, production line employees who assemble the enterprise’s signature product are typically employees, while efficiency consultants called in to streamline the production line are more likely to be contractors.
  2. Do the Worker’s Managerial Activities Affect His or Her Potential for Profit or Loss? To the extent that the worker performs managerial duties, do those duties result in direct economic gain or loss? For instance, if hiring a helper or investing in a new machine results in higher earnings for the worker due to increased production capacity, it’s easier to make the case that he or she is an independent contractor.
  3. Does the Worker Invest His or Her Own Capital? Relatedly, workers who invest substantial amounts of their own capital in the business — thereby sharing potential for loss as well as gain — are more likely to be considered independent contractors. However, the requirement that workers purchase their own tools or equipment is not conclusive proof that those workers are independent contractors.
  4. Is the Worker Engaged in the Market? Do workers freely engage in competition with others to offer their services? For instance, tradespeople who temporarily join home construction crew while continuing to look for other job opportunities remain engaged in the market, and may, therefore, retain independent contractor status.
  5. Is the Engagement Indefinite? Workers whose engagements with employers are indefinite or open-ended are more likely to be considered employees. However, this does not preclude employers from hiring temporary employees during busy times of the year or temporary periods of increased customer demand. Moreover, independent contractors who retain clients indefinitely do not necessarily become employees at any point.
  6. To What Extent Does the Worker Control His or Her Activities and Outcomes? This question is more complicated than it sounds. Important considerations include the worker’s degree of control over hours worked, shift times, pay rates, work site, discretion to hire helpers or acquire equipment, and ability to work for others (including competitors). Independent contractors generally have more control over their activities and outcomes — for instance, the ability to work from home and set their hours.

Exempt Employees vs. Nonexempt Employees

The FLSA further breaks down the “employee” category into two subcategories: exempt and nonexempt workers (employees).

Broadly speaking, an exempt employee is any employee who is exempt from the FLSA’s minimum wage and overtime pay requirements for any reason. Some common exemptions are described in the following section.

However, “exempt” is often used as shorthand to refer to particular classes of exempt employees: executives, administrators, professionals, computer employees, and highly compensated employees.

These classes share some common requirements, described in detail in Fact Sheet 17A:

  • Compensation must be made on a salary basis (fee basis is OK for computer employees and professionals)
  • Compensation must not be less than $684 per week
  • The employee must have substantial discretion in his or her activities, or advanced knowledge and skills

Each class defines additional criteria that the employee must meet. For instance, executives must directly manage at least two individuals and have the authority to hire, fire, and advance their subordinates as necessary (or be in a unique position to influence such matters, if they are not directly responsible for them).

Highly compensated employees generally must earn about $107,000 per year in total compensation, including bonuses and performance pay, with the stipulation that at least $684 per week be paid as regular salary.

FLSA Changes Due to the 2019 Overtime Final Rule

The Department of Labor’s 2019 overtime final rule, announced in September 2019 and officially implemented in January 2020, significantly modified the exemption criteria for the above classes. To be considered exempt from the new rule, employees must:

  • Be compensated on a salary or fee basis
  • Earn at least $684 per week or $35,568 per year if employed for the entire year
  • For highly compensated employees, earn at least $107,432 per year in total compensation
  • For employees earning less than the salary threshold ($684 per week or $35,568 per year), earn no more than 10% of compensation to satisfy the minimum salary level through nondiscretionary bonuses and incentive payments, such as commissions

Other Carve-Outs and Exemptions

Beyond the exempt employee question, the FLSA has many additional carve-outs and exemptions. The following section is representative, but it’s by no means exhaustive.

If you’re unsure whether you, your occupation, or your industry is affected, read the FLSA as amended, check out the DOL’s supplemental fact sheets, and consult a labor lawyer if things remain unclear.

Agricultural Employees

The FLSA contains numerous modifications for agricultural employers and employees. First and foremost, farm employers are not required to give overtime pay. Farm businesses that used no more than “500 man-days of labor in any calendar quarter of the previous year” are exempt from minimum wage provisions as well.

The FLSA’s child labor provisions are looser in the agricultural realm. Minors over age 16 may work unlimited hours in any farm job, without restriction. Minors age 14 and older may perform nonhazardous farm jobs outside regular school hours, and younger minors can work on their parents’ farms or elsewhere with their parents’ written consent.

Tipped Employees

Under the FLSA, tipped employees are those who “customarily and regularly receive more than $30 a month in tips.” Employers are permitted to pay tipped employees as little as $2.13 per hour in “direct wages.”

Tipped employees must earn enough tips (a weekly average of $5.12 per hour) to clear the federal minimum wage threshold each workweek. Employers must make up for any shortfall. For instance, when a tipped employee earns an average of $6.25 per hour in wages and tips, the employer must kick in an additional $1 per hour.

Also, tipped employees must retain all their tips — the employer can’t take a cut — or participate in a valid tip pooling arrangement.

Youth Minimum Wage

Young people are subject to an additional FLSA exemption. Employers are permitted to pay employees under age 20 as little as $4.25 per hour during their first 90 days of employment.

However, employers can’t use this provision to displace established employees who earn more — for instance, by firing them or reducing their hours to make room for younger, cheaper hires.

Seasonal Employees

Employees of seasonal amusement or recreational establishments, such as boardwalk businesses in beach towns and parks open only during the summer months, are exempt from the FLSA’s minimum wage and overtime pay provisions.

Fact Sheet 18 details the criteria such establishments must meet to benefit from this exemption:

  • The business does not operate as an “amusement or recreational establishment” for more than seven months out of the year (it may “operate” longer than this or even year-round, but only for essential tasks such as maintenance)
  • Establishments open longer than seven months out of the year, or even year-round, must earn no more than one-third of their revenues in the offseason — basically, the slowest six-month period (consecutive or not)

Domestic Service Employees

Domestic service workers — such as nannies, babysitters, housekeepers, day laborers, and cooks — are covered by the FLSA, provided they meet one of the following criteria:

  • Their cash wages from a single employer were greater than $2,300 in the calendar year 2021 (this figure is subject to change periodically at the Social Security Administration’s discretion)
  • They work at least eight hours per week for one or multiple employers

If they meet one or both of these criteria, domestic service workers are covered by the FLSA regardless of their employers’ revenues, commercial activities, or incorporation status.

Jurisdictional Variation

It’s worth reiterating that state and local labor laws often afford employees more generous or comprehensive protections on matters covered by the FLSA.

For instance, a handful of states require employers to pay some or all tipped employees the prevailing minimum wage, not the reduced minimum wage permitted under the FLSA.

Whether you’re an employee who stands to benefit from such variation or an employer whose cost of doing business — or choice of where to locate a new business — may change as a result, it behooves you to understand local labor laws.


Detecting and Enforcing FLSA Violations

FLSA is enforced by the Department of Labor’s Wage and Hour Division. Wage and Hour, as it’s known, is a major division of a sprawling bureaucracy, but the American economy is supported by millions of small businesses and larger enterprises.

Although it employs investigative personnel, Wage and Hour simply doesn’t have the resources to intentionally and affirmatively enforce FLSA violations on a large scale. Therefore, it relies to a great degree on complaints from current and former employees and contractors to detect FLSA violations.

If your employer is in compliance with the FLSA’s recordkeeping provisions, your workplace should have a posted flyer describing the act’s protections and the basic procedure for filing a complaint about a potential FLSA violation. (Not posting this flyer is itself a FLSA violation.) You can also refer to this simple PDF version, courtesy of Wage and Hour.

To file a complaint against your employer, you need to provide as much information as possible about yourself, your employer, the nature of your duties, and the situation that you suspect to be an FLSA violation.

By law, your identity is not revealed to your employer while the complaint is being investigated, even if you’re an undocumented immigrant, and your employer cannot terminate you for filing the complaint.


Final Word

Many years ago, in one of my first regular jobs, I worked as a delivery driver for a national sandwich quick-serve restaurant chain. I earned the then-current state minimum wage, plus tips and a small fee — something like 5% of each check — to cover gas and vehicle maintenance.

I wasn’t making a fortune, but I did fine for a young, single person. After a busy four-hour lunch shift, I’d head home with $60 to $80 cash, with another $25 or so (after tax withholding) coming on my next paycheck. The restaurant was in a college neighborhood filled with bars, so late nights were even better. On those shifts, I’d routinely go home with $100 or more in cash for a similar amount of work.

Later, I moved across state lines to a new city and applied for a delivery driving position at the same chain’s local franchise. I was surprised to learn that I’d be earning a fraction of the wage my previous employer paid, far under the state minimum wage. The new restaurant was in an even busier college neighborhood with high order volumes and generous late-night tips, so it actually wasn’t much of a pay cut. But it still stung.

It was only years later that I learned why I’d been paid so well at my first delivery driving job: My home state at the time was one of the only states in the U.S. that required employers to pay certain classes of employees the state minimum as a base wage, before tips.

I’d unwittingly benefited from one of the many state labor statutes that go above and beyond the FLSA’s minimum standards. Based on my rough math, I pocketed at least $2,000 more during my tenure as a result. If you live in a state with labor-friendly laws, you might stand to benefit as well.

Brian Martucci
Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

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