Priority Number
Wage and Hour Laws

FLSA Fundamentals

The Fair Labor Standards Act (FLSA) is the primary federal law affecting employee compensation and other wage issues. Passed in 1938 during the Great Depression, it was developed to eliminate labor conditions that contributed to a low standard of living.

Today, it’s responsible for setting minimum wage, overtime, recordkeeping and child labor standards.

Under the FLSA, covered, nonexempt employees are entitled to at least a federal minimum wage. If your state has a higher minimum wage, you must pay employees the higher wage. (In other words, when federal and state laws differ, the more stringent law applies.) With only a few exceptions, you also must pay overtime (“time and a half”) for work beyond 40 hours a week.

The FLSA’s child labor regulations prohibit employees 18 years and younger from performing certain jobs. These regulations also set rules concerning the hours and times when minors may work.

On the recordkeeping side of the law, you must maintain certain documents for each covered, hourly worker, including:

Personal information, including full name, Social Security number, address, occupation, gender and birthdate if less than 19 years of age
Time and day of the week when the workweek begins
Hours worked each day
Total hours worked each workweek
Basis on which employee’s wages are paid
Regular hourly pay rate
Total daily or weekly straight-time earnings
Total overtime earnings for the workweek
All additions to or deductions from the employee’s wages
Total wages paid each pay period
Date of payment and pay period covered by the payment
Note: You must keep these records for at least three years.

Key FLSA guidelines:

You may pay employees on a piece-rate basis (such as with factory workers), as long as they receive at least the equivalent of the required minimum hourly wage.
You may employ certain individuals at wages below the minimum age under DOL-issued certificates. These include student learners (vocational education students); full-time students in retail or service establishments, agriculture or institutions of higher education; and individuals impaired by physical or mental disabilities, including those related to age or injury.
You may not displace an employee to hire another at the youth minimum wage.
You’re not limited to the number of hours of overtime you schedule. However, the FLSA requires you to pay covered employees no less than 1.5 times their regular rate of pay for all hours in excess of 40 in a single workweek, unless they’re exempt.
You may not fire or discriminate against an employee for filing a complaint or participating in a legal proceeding under the FLSA.

The FLSA does not require:

Vacation, holiday, severance or sick pay
Meal or rest periods, holidays off or vacations
Premium pay for weekends or holiday work
Pay raise or fringe benefits
Discharge notices, reason for discharge or immediate payment of final wages

Minimum Wage

Generally, the FLSA requires that you pay employees at least a minimum wage for all hours worked in a workweek. The federal minimum wage is currently $7.25 an hour, effective July 24, 2009. Special minimum wage rules apply to tipped employees, full-time students, youth workers and disabled workers.

At the same time, state and local laws may provide higher minimum wage rates than the federal minimum. When they do, you must honor the amount most beneficial to the employee.

According to the Bureau of Labor Statistics, 1.6 million hourly workers earned the federal minimum wage in 2012, with nearly 2 million more earning less than the minimum because they fell under one of the above exemptions. More than half of minimum wage employees work in the leisure and hospitality industry, followed by retail, education and health services.

When nonexempt employees are paid in any manner other than on an hourly basis (such as salary, commissions or a piece-rate basis), their pay must generate an hourly rate of at least the minimum wage when divided by the actual hours worked in the workweek. For example, it would be unlawful to pay a nonexempt employee a salary of $300 for a 60-hour workweek because the employee’s hourly rate for that workweek would equate to $5.00 per hour, which is below the required minimum wage. Paying a non-exempt person a salary does not excuse you from calculating and paying at least the minimum wage for all hours worked.

The FLSA also prohibits you from making deductions that reduce an employee’s pay below the minimum wage for all hours worked in any given workweek. Deductions that may not cut into the minimum wage include: mandatory employee payments for “tools of the trade;” uniforms required by the employer, by law, or by the nature of the work; maintenance costs for mandatory uniforms; cash or inventory shortages; “out-of-policy” checks; expenses incurred for, or on behalf of, the employer; and many other kinds of costs or payments. By contrast, the FLSA permits a deduction for items that benefit employees exclusively (e.g., health or life insurance), even if the deduction cuts into the minimum wage. If the minimum wage is affected, however, the employee must be given the option of rejecting the benefit.

Momentum builds for state and city minimum wage hikes

In his State of the Union address in January 2014, President Obama spoke about the issue of income inequality, challenging Congress to raise the minimum wage for all U.S. workers to $10.10 an hour. Since 1938, the federal minimum wage has increased 22 times – from 25 cents an hour to the current rate of $7.25 an hour. Adjusted for inflation, today’s rate is roughly the same as it was in the 1950s. It’s estimated it would have to jump to at least $10.55 to keep up with the cost of inflation and be considered a fair “living wage.”

Although a sweeping change has not yet taken hold on the national level, many states and cities are taking legislative matters into their own hands and approving their own minimum wage increases. In the face of strong resistance to a federal-level wage hike, advocates are quick to point out the success of cities like San Francisco that act independently on the issue. More than a decade ago, the city made history for raising the minimum wage above the federal standard. Since then, San Francisco has reported steady employment growth that surpasses all its surrounding counties. Not only did a wage hike not discourage employers from hiring (a common argument), but it also helped companies save money due to greater employee loyalty and less turnover.

With San Francisco serving as a positive role model for change, we can expect more cities to follow its lead and explore the economic and employment advantages of a higher minimum wage.

Overtime Pay Provisions

Did you know that incorrect pay for overtime is the biggest cause of FLSA lawsuits? Under the FLSA, nonexempt, hourly employees are entitled to receive one-and-a-half times their regular rate of pay for all hours worked in excess of 40 in each workweek.

With this basic definition, keep these two key points in mind:

Overtime must be calculated on a workweek basis.
Many employers pay employees biweekly, semimonthly or monthly. As a result, they may calculate overtime based on hours worked in a pay period. An employer, for example, may pay employees overtime only if they work more than 80 hours in a two-week pay period. This is illegal under the FLSA, regardless of whether an employee requests it or signs a waiver. If an employee works 45 hours in the first week and 35 hours in the second week, the employee is entitled to five hours of overtime pay for the first week, even though the average of both weeks is 40 hours. (Exceptions exist for certain medical professionals and public-sector workers.)
Employees must be paid overtime on their regular rate, not their base rate.
Many employers make the mistake of paying overtime based on an employee’s base rate rather than the regular rate. If other forms of pay, such as nondiscretionary bonuses and shift differentials, raise the employee’s regular rate, the overtime rate also must be raised. The forms of compensation that don’t increase the regular rate include vacation pay, sick pay, holiday pay, entirely discretionary bonuses, and health and welfare benefits.

For example, Joe is a non-exempt employee, and he works 50 hours in a workweek at a base rate of $10 an hour. However, Joe also receives a $100 productivity bonus in the workweek, making his regular pay for the week $600 (50 hours × $10 an hour + $100 bonus). So his regular rate for the week actually becomes $12 an hour ($600 total regular pay divided by 50 hours worked). His overtime must be paid at $18 an hour (1.5 × the regular rate) and not $15 (1.5 × the base rate).

Depending on where you do business, you may need to be aware of state-level requirements, as well. Where there are differences, you must comply with the rules that are more favorable to the affected employee.

Case in point
United Parcel Service (UPS) agreed to pay $18 million to settle claims for unpaid overtime by a group of part-time supervisors in California. While federal law extends overtime to non-exempt employees clocking 40+ hours per work week. California state law specifies that employees be paid overtime after eight hours in a workday. This daily overtime provision, coupled with the company wrongly classifying the supervisors as exempt managers, got UPS in trouble under California’s more generous state overtime laws.

California isn’t the only state with laws that differ from the FLSA. Alaska and Nevada also measure overtime on a daily basis, along with a handful of states targeting employers that the FLSA doesn’t (such as small and local companies) or extending overtime benefits to additional types of employees.

With the U.S. Department of Labor’s Wage and Hour Division (WHD) reporting more FLSA violations than ever, you need to get on the right side of the overtime rules. Here are some important compliance considerations:

Understand your state overtime rules and how they vary from federal law. Always follow the law most beneficial to the employee’s situation.
Pay special attention if you’re involved in “interstate commerce,” meaning you conduct business between states. Even if you’re a small company grossing less than $500,000 annually, the overtime rules apply if your company engages in business activities in other states, such as sending or receiving products interstate or working with out-of-state customers.
Don’t misclassify workers to avoid overtime pay. Look beyond the job title and carefully consider the actual work functions to determine FLSA classification. You’re exposing your company to risk if you skirt the rules by calling a rank-and-file employee an “assistant manager” – or compensating non-supervisory individuals with salaries instead of hourly wages.
Be certain any employees ineligible for overtime pay fall clearly under the executive, administrative or professional exemptions – sometimes called “white-collar” exemptions. In addition to holding specific job responsibilities (such as supervising others and making essential business decisions), these employees must be paid a specific salary o be exempt. Exemptions exist for outside sales employees and certain computer-related employees, as well.

FLSA Child Labor Standards

Every year, millions of teenagers apply for after-school or summer jobs at restaurants, stores, offices and other workplaces. Hiring these teens can be extremely rewarding for you as an employer, but it also creates certain challenges.

In most cases, teenage employees are protected under the child labor laws of the FLSA. Your state may have its own set of child labor laws, too. If it does, you must follow whichever set of rules is stricter and more beneficial to the minors you hire.

Child labor laws cover everything from the hours and jobs teens can work to safety and recordkeeping requirements for employers. Breaking these rules – accidentally or intentionally – can be costly.

The government can fine you up to $11,000 for each employee for which the child labor laws were not followed.

In addition, if you are found to have intentionally broken the law, you could be fined up to $10,000 for the first violation – and another $10,000 and up to six months in prison for a second violation.

Regarding the child labor laws of the FLSA, the guidelines vary depending on the age of the teenager. This includes restrictions on work hours for teens under age 16, in addition to clarifying acceptable activities for all workers under age 18. Here are the key rules:

In general, the FLSA does not allow minors under the age of 14 to work. However, a parent who is the sole owner of a business may hire his or her child in any occupation except mining, manufacturing, and other occupations declared hazardous by the U.S. Secretary of Labor.
Children who are employed as actors or performers in a theatrical production are permitted to work at any age.
Children aged 14 and 15 may work only three hours on a school day, eight hours on a non-school day, 18 hours in a school week (unless they are enrolled in an approved WECEP, in which case there are different laws regarding their hours) or 40 hours in a non-school week. Generally speaking, they can work only between 7 a.m. and 7 p.m., but from June 1 through Labor Day they may work up to 9 p.m.
In addition to restricting work hours for 14- and 15-year-olds, child labor laws limit the work teens may perform, with specific restrictions for grocery stores, restaurants and as lifeguards.
Fourteen-year-olds may not work as lifeguards, but 15‑year‑olds may with certain restrictions.
Properly certified 15-year-olds may work as lifeguards at water amusement parks, wave pools, lazy rivers and activity areas, but they may not work at the top of elevated water slides.
The FLSA does not restrict the numbers of hours a minor aged 16 or older may work.
The FLSA restricts the kind of work that anyone between the ages of 14 and 18 can perform.
Although 17-year-olds are allowed to drive as part of their jobs, employers must follow specific rules and may not ask them to handle urgent, time-sensitive deliveries.

FLSA guidelines for paying teens

There are some minor differences to keep in mind when paying teens or setting up their employee files.

For example, a special minimum wage of $4.25 an hour can be paid to employees 19 or under for the first 90 consecutive days of their employment. It does not matter when the job offer was made or accepted (or when the employee was considered hired). The 90-day period starts with and includes the first day of work and is counted as 90 consecutive days on a calendar, not days of actual work.

If an employee turns 20 during the 90-day period, you must stop paying the special minimum wage on the day of his or her birthday. Also, if a young employee happens to be working for someone else at the same time he or she starts working for you, you still can pay the special minimum wage. It does not matter how many times an employee is paid this special wage -- as long as the employee is under 20 and it is the first time he or she is working for you, the 90‑day minimum wage rule applies.

After 90 days, you must pay the full federal minimum wage, unless your employee is a student learner (such as a vocational education student) or a full-time student working in a retail or service establishment, agriculture, or institution of higher education. In these instances, you may be able to continue to pay the employee less than the minimum wage.

When age certificates are necessary

By regulation, you must keep records of the dates of birth of employees under age 19, their daily starting and quitting times, their daily and weekly hours of work, and their occupations.

You can protect your business from unintentionally violating the child labor provisions by keeping on file an employment certificate or age certificate for each minor worker to show that the youth is the minimum age for the type of job performed. State-issued certificates are generally acceptable for this purpose. You must return the age certificate to minors when their employment is complete, so they can share it with future employers without having to go through additional certification processes.

Teen employee rights

As you would expect, the FLSA prohibits employers from engaging in oppressive child labor practices, as defined by the Act. The FLSA also gives employees the right to file a complaint with the Wage and Hour Division of the DOL, and to testify or cooperate with an investigation or legal proceeding without being fired or discriminated against in any manner.

The Role of the Equal Pay Act in Closing the Gender Pay Gap

Enforced by the Equal Employment Opportunity Commission (EEOC), the Equal Pay Act (EPA) requires employers to pay men and women equal pay for equal work. Yet the issue of equal pay remains a persistent issue for women, who make up nearly half of the U.S. labor force and hold more positions traditionally occupied by men than ever before.

It wasn’t until the passage of the EPA in 1963 that it was even illegal to pay women lower rates for the same job held by men. Until then, newspapers would frequently publish separate job listings for men and women, with separate pay scales. The income inequality was obvious: In the early ‘60s, women with full-time jobs earned an average of 59 cents for every dollar their male colleagues pocketed for the same position.

Fast forward to the 21st century. It’s estimated that since the passage of the EPA, the closing of the wage gap between men and women has occurred at a rate of less than half a penny a year.

Today, women earn an average of 77 cents for every dollar earned by men – a wage gap that widens for women of color and women with disabilities.

While this is a marked improvement over the past five decades, the fact remains that NO gender earnings gap should exist, since the federal Equal Pay Act expressly prohibits it. What does the law cover – and what is your responsibility as an employer to protect women from making less than men?

Basically, the law states that if a job requires substantially equal skill, effort and responsibility and is performed under similar working conditions within the same establishment, it should pay the same, regardless of the employee’s gender. It’s important to distinguish that job content -- not job title -- determines whether positions are considered substantially equal.

Here’s a closer look at each factor and how it comes into play:

Skill: Skill takes into account the experience, ability, education and training required to perform a job (as opposed to skills an employee may possess but that aren’t necessary for the position). Practical example: Two bookkeeping jobs would be considered equal under the EPA even if the male employee has a master’s degree in physics, because that degree is not required for the job.
Effort: Effort refers to the physical or mental exertion needed to perform a job. Practical example: The person at the end of an auto parts assembly line must place the finished product on a board as he or she completes the work – a job that that requires more effort than the other assembly line jobs. Since this added task is a substantial and regular part of the job, it would be OK to pay that person more, whether that job is held by a man or a woman.
Responsibility: Responsibility is the level of accountability required to perform a job. Practical example: A salesperson who must determine whether to accept customers’ personal checks has more responsibility than other salespeople who do not verify checks. On the other hand, a minor difference in responsibility, such as turning off the lights at the end of the day, would not justify a variation in pay.
Working conditions: This encompasses two factors: 1) physical surroundings, such as temperature, fumes and ventilation, and 2) safety and/or health hazards, such as working in a confined space or with explosives. Practical example: A male employee doing work in a confined space at a construction site may be paid more than a female coworker who isn’t required to enter that space.
Same establishment: An establishment is a distinct physical place of business rather than an entire business or enterprise that might consist of several places of business. In some circumstances, however, physically separate places of business may be treated as one establishment. Practical example: A central administrative unit hires employees, sets their compensation and assigns them to work locations. As such, the separate work sites can be considered part of one establishment.
Although the law regarding equal pay is quite specific, employers have one very important right under the EPA. Pay differentials are allowed when they are based on seniority, merit, or quantity or quality of production. These are known as “affirmative defenses”, and it is your burden to prove they apply if you’re ever involved in a pay-related dispute.

Beyond this, here are some steps to take to stay in compliance with the EPA and ensure equal pay for equal work:

Appoint an HR professional or other qualified individual to monitor your pay practices, including adherence to federal, state and local anti-discrimination laws.
Formally evaluate your compensation system each year to identify potential pay discrepancies based on gender and race/ethnicity.
Evaluate all forms of compensation, since the EPA covers more than just salary. This includes overtime pay, bonuses, stock options, profit-sharing and bonus plans, life insurance, vacation and holiday pay, gasoline allowances, reimbursement for travel expenses and benefits.
In cases where starting salaries and bonuses are negotiated, be certain the agreement doesn’t adversely impact women.
Since performance evaluations also can affect pay, double check that your review process doesn’t unfairly disadvantage women.
Correct problems as soon as they are discovered, keeping in mind that you may not reduce an employee’s pay to fix a pay differential. Rather, the wages of the underpaid employee must be increased.

Lilly Ledbetter Fair Pay Act

Along with the EPA, the Lilly Ledbetter Fair Pay Act gives employees certain pay discrimination protections.

The legislation was signed into law by President Obama on January 29, 2009, overturning the Supreme Court’s ruling in Ledbetter v. Goodyear Tire & Rubber Co. (Lilly Ledbetter was a production supervisor at a Good Year Tire plant in Alabama, who discovered she was paid less than her male colleagues for nearly two decades.) The earlier Supreme Court decision restricted the timeframe for filing paycheck discrimination claims to 180 days of the employer’s initial decision. For example, if an employee felt she was denied a raise based on gender, she had to file a claim within 180 days of the employer making the decision or she was forever barred from disputing any discriminatory paychecks that followed.

Instead, the Lilly Ledbetter Fair Pay Act supports the position that employees deserve a fair and reasonable opportunity to seek resolution for paycheck-related issues, extending the time period for filing claims under Title VII, the ADEA and the ADA. As a result, each paycheck containing discriminatory pay is considered a separate violation (triggering a new charge-filing period), regardless of when the discrimination began. Further, the Act offers retroactive protections, allowing employees to recover back pay for the last two years of paychecks. Summarizing the intent of the Act, the EEOC states: “Repeated occurrences of the same discriminatory employment action, such as discriminatory paychecks, can be challenged as long as one discriminatory act occurred within the charge filing period.”

Under the Lilly Ledbetter Fair Pay Act, victims can challenge a wide range of pay-related discriminatory actions, including:

Base pay or wages
Job classifications
Career ladder or other promotion denials
Tenure denials
Lack of employer response to raise requests

To stay on the right side of the Act, you should:

Carefully review all pay-related recordkeeping practices
Document the legitimate, nondiscriminatory rationale for pay-related decisions
Audit all pay policies to address any actual or perceived discrepancies

Consumer Credit Protection Act and Wage Garnishment

Wage garnishment is a legal procedure where a person’s earnings are withheld by an employer for payment of a debt, such as child support or unpaid taxes. Most garnishments are made by court order.

Title III of the Consumer Credit Protection Act (CCPA) prohibits you from discharging an employee whose earnings have been subject to garnishment for any one debt, regardless of the action taken to try to collect it. It also limits the amount of an employee’s earnings that may be garnished, along with the maximum amount you may garnish in any workweek or pay period.

Title III is administered by the WHD. The WHD has no other authority with garnishments. Questions about issues other than the amount being garnished or termination should be referred to the court or agency initiating the withholding.

Who's covered under the law

The law protects anyone receiving personal earnings (i.e., wages, salaries, commissions, bonuses or other income), including earnings from a pension or retirement program. Tips generally are not considered earnings under the wage garnishment law.

The amount of pay subject to garnishment is based on an employee’s disposable earnings, which is the amount left after legally required deductions are made. Examples of such deductions include federal, state and local taxes, the employee’s share of state unemployment insurance and Social Security. It also includes withholdings for employee retirement systems that are required by law.

Deductions that are not required by law — such as those for voluntary wage assignments, union dues, health and life insurance, contributions to charitable causes, purchases of savings bonds, retirement plan contributions (except those required by law) and payments to employers for payroll advances or purchases of merchandise — usually may not be subtracted from gross earnings when calculating disposable earnings under the CCPA.

The law sets the maximum amount that you may garnish in any workweek or pay period, regardless of the number of garnishment orders you have received. For ordinary garnishments (i.e., those not for support, bankruptcy or any state or federal tax), the weekly amount may not exceed the lesser of two figures: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage.

Jack’s weekly after-tax earnings are $550. Under a garnishment order, Jack’s employer must determine the amount to be withheld. First, the employer calculates 25 percent of Jack’s disposable earnings to be $137.50 ($550 x 25%). Next, the employer calculates that $374.50 is the amount by which Jack’s disposable earnings are greater than 30 times the federal minimum wage ($550 – ($5.85 x 30) = $374.50). Under the Act’s rules, Jack’s employer may withhold only $137.50, the smaller of the two amounts. Jack will receive $412.50 ($550 – $137.50) in pay.

Child support and alimony

Specific restrictions apply to court orders for child support or alimony. The garnishment law allows you to garnish up to 50 percent of a worker’s disposable earnings for these purposes if the worker is supporting another spouse or child, or up to 60 percent if the worker is not. You may garnish an additional five percent for support payments more than 12 weeks in arrears.

Ana supports a child on her own and receives gross earning in a particular week of $450.00. After deductions required by law, her disposable earnings for this particular week are $400.50. In this week, $200.25 ($400.50 x 50%) may be garnished because she is supporting a child. If Ana was not supporting a child or a spouse, $240.30 could be garnished because this amount would be 60% of her disposable income.

Exceptions to the law

The wage garnishment law specifies that the garnishment restrictions do not apply to certain bankruptcy court orders, or to debts due for federal or state taxes. If a state wage garnishment law differs from the CCPA, the law resulting in the smaller garnishment must be observed.

The Debt Collection Improvement Act authorizes federal agencies or collection agencies under contract with them to garnish up to 15 percent of disposable earnings to repay defaulted debts owed the U.S. government. The Higher Education Act authorizes the Department of Education’s guaranty agencies to garnish up to 10 percent of disposable earnings to repay defaulted federal student loans. Such withholding is also subject to the provisions of the federal wage garnishment law but not state garnishment laws. Unless the total of all garnishments exceeds 25 percent of disposable earnings, questions regarding such garnishments should be referred to the agency initiating the withholding action.

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Jaime Lizotte
Presented by: Jaime Lizotte,
HR Solutions Manager
Hiring, recordkeeping, time and attendance tracking, employee discipline, filing 1099 and W2s ... all of these tasks create overhead expenses and detract from revenue-generating activities.