Fair Labor Standards Act (FLSA) Regulations
The Fair Labor Standards Act is a US federal law introduced to prevent unequal employment practices and preserve the rights of all employees in the US.
In order to be FLSA compliant and avoid unexpected wage and hour lawsuits, all US businesses are required to track time for all non-exempt employees and keep those records for two years.
Here are the most important things you need to know about DOL's FLSA timekeeping compliance.
How Clockify helps with compliance →
What is the Fair Labor Standards Act (FLSA)?
The Fair Labor Standards Act (FLSA) are rules set by the US Department of Labor regarding:
- Minimum wage,
- Overtime pay,
- Recordkeeping, and
- Youth employment norms.
More specifically, the FLSA is in charge of:
- Setting minimum wage,
- Setting overtime pay,
- Supervising and assessing record keeping, and
- Laying out standards for youth employment.
They apply to all businesses in the US, regardless of their operating sector.
Even though businesses need to track their time, the FLSA doesn't insist on a specific timekeeping method, so companies may choose whichever method they prefer as long as it gives accurate records.
Here are some common examples of timekeeping methods:
- A time clock that records when the staff begin and end their work,
- A timekeeper responsible for recording employees' time, or
- A time tracking software that tracks employees' work hours and helps with creating timesheets.
Who has to comply with FLSA rules and regulations?
In terms of employees, the FLSA rules and regulations apply to everyone who is:
- A full-time or part-time employee within the private sector, and
- A federal, state, or local government employee.
In terms of companies and enterprises, the FLSA rules and regulations apply to all who:
- Have a yearly gross of $500,000 or more,
- Care for the sick, the elderly, or the mentally challenged as their primary area of operation,
- Run elementary and secondary schools or institutes that provide higher education, and
- Run schools tailored exclusively for gifted children.
What is the Fair Labor Standards Act's minimum wage?
According to the current FLSA regulations, the minimum wage per hour is:
- $7.25 for non-exempt workers who are 20 years of age or older (unless classified into a category specifically exempted from the FLSA),
- $2.13 for tipped employees, and
- $4.25 for workers under the age of 20 during their first 90 days of employment.
Take into account that the minimum wage rate mustn't be lower than these figures.
Furthermore, there are exceptions regarding the minimum compensation that apply to workers in certain employment categories under specific circumstances. This means that certain employees can legally receive less than the minimum federal wage requirement (which is also called a subminimum wage).
Workers who earn subminimum wages include the following groups:
- Student-learners (students in vocational schools who are at least 16 years of age),
- Workers with disabilities (those whose mental or physical disability impairs their productivity and capacity), and
- Full-time students (those working in retail, agriculture, service, colleges, or universities).
Employment at less than the minimum wage is only allowed and regulated with a certificate by the Secretary of Labor.
How is the Fair Labor Standards Act's overtime pay calculated?
Non-exempt employees are allowed to work overtime, and thus they're compensated for their overtime work. As the term suggests, they are not exempt from the FLSA rules regarding overtime pay.
Exempt employees, on the other hand, are free from the FLSA minimum wage and overtime pay.
Calculating overtime pay for non-exempt employees
The compensation that non-exempt employees receive for overtime work shouldn't be less than 1.5 times their regular pay rates within a 40-hours workweek, with some exceptions.
According to the Fair Labor Standards Act, 1.5 times of employee's regular rate is always mandatory for all nonexempt employees who work over 40 hours in a workweek, except for:
- Police officers,
- Public fire fighters,
- Hospital employees, and
- Nursing homes employees.
Some states also have special exceptions to their overtime pay rules for certain employees (e.g. Washington and California). In such cases, the employee is eligible to receive overtime pay based on the standard that allows higher compensation.
Calculating overtime pay for non-exempt employees is fairly simple. For example, if an employee earns $9 per hour and works for 46 hours within a workweek, this is how the employer needs to calculate their payment:
- They need to multiply $9 by 1.5 and get $13.5 per each additional hour worked.
- Then, they multiply $13.5 by 6 additional hours to get $81 of overtime pay.
The regular pay for 40 hours per week (when the hourly rate is $9) is $360, which suggests that $360 of regular pay, plus $81 of overtime pay, equals $441 in total for the entire workweek.
Calculating overtime pay for employees paid per commissioned job
In order to be exempt from overtime payments, commissioned employees must meet the following conditions:
- The employee must work in a retail or service business,
- The regular rate of pay must be higher than 1.5 times the minimum wage, and
- More than half of the total earnings in a specific period must include commissions.
If the employee doesn't meet all of these conditions, they must be paid for all overtime hours 1.5 times the regular rate of pay.
If the employee is paid per commissioned job, calculating overtime pay will also start from taking an hourly rate into account.
To find the hourly rate, the employer needs to divide the amount earned for a week with the number of employee hours worked, including overtime. Just like in the previous example, overtime equals 1.5 of the regular rate.
For example, if an employee is paid $352 per commissioned job (the amount earned for a week) and they have worked 44 hours within a week (number of hours worked), the breakdown goes as follows:
- Divide $352 by 44 hours and get an $8 hourly rate.
- Then, multiply $8 by 1.5 which equals $12.
So, the employee is entitled to $12 for each overtime hour. In this case, this amounts to $48 for 4 additional hours. This in turn means $400 in total ($352+$48).
Calculating the regular rate and overtime pay for salaried employees
To calculate the regular rate for salaried employees (those that receive the same compensation every week regardless of the hours worked), you have to divide the salary by the actual hours the employee has worked within a week.
For example, if an employee's actual hours worked differ from week to week, but they receive a flat compensation of $450, the breakdown for a 45-hour week goes as follows:
- Divide $450 by 45 hours worked which equals a $10 hourly rate.
The employee receives half of the $10 as compensation for each overtime hour. In this case, for 5 overtime hours, the employee earns $25 ($10/2=$5; $5 x 5 hours=$25).
- In total, that's $475 for the entire week ($450+$25).
The hourly rate and the final amount for salaried employees will vary depending on the total hours worked. The higher the total hours, the lower the hourly rate will be, which in turn, will impact the overtime payments.
Exempt and non-exempt employees
When it comes to applying the FLSA guidelines, there is a difference between exempt and non-exempt employees.
To be precise, whether someone will be classified as exempt or non-exempt may depend on:
- The compensation offer (how much the employee is paid),
- The manner in which they're paid (salary or hourly pay), and
- The nature of the role (the type of work the employee performs).
To sum up, you can determine whether an employee has an exempt or non-exempt status by their salary level, salary basis, and job duties.
Professions that are exempt from overtime payments and minimum wage
Some professions are exempt from the overtime pay provisions, while some are exempt from both the minimum wage and overtime pay provisions
Here's a list of some professions exempt from overtime pay and minimum wage:
- Executives who supervise and manage two or more employees,
- Administrative high-level employees who keep the business running,
- Teachers who perform work requiring higher education and professional employees whose work requires specialized education,
- Outside sales workers who sell at the place of business or door-to-door,
- Computer professionals (network, internet, and database administration), and
- Amusement and recreational organizations performing seasonal work.
For more detailed information on the professions exempt from overtime payments and minimum wages, check out the US Department of Labor.
Employees who are exempt from overtime payments
The following list of employees are classified as exempt from overtime protections, even if they work for more than 8 hours per day (or 40 hours per week):
- Sales workers using cars, truck, boats and other transportation vehicles to sell products,
- Commissioned sales employees in retail and sales organizations,
- Drivers, driver's helpers, loaders, and mechanics working for a motor carrier,
- Agricultural employees working on small farms,
- Taxicab drivers and other transportation workers driving locally,
- Movie theater workers (actors, composers, dancers, and other creatives), and
- Certain media workers (presenters, news editors, narrators, opinion columnists or commentators).
Even though the rules vary by state, workers in any of the above classifications are usually considered exempt from receiving overtime pay.
Furthermore, the Fair Labor Standards Act excludes from receiving overtime compensation any person who is technically not considered to be an ‘employee.' Such individuals are those who:
- Occupy a public elective office or agency,
- Work as a member of the personal staff in public elective office,
- Perform duties and services on a policy-making level,
- Serve as an immediate advisor to the designated office holder, and
- Work in the legislative branch of the government.
Recordkeeping rules for exempt employees
By definition, exempt employees are not paid by the hour but earn fixed salaries. This includes jobs where it's required to:
- Be discreet and make independent judgments on various matters,
- Be in control of at least two employees,
- Employ, dismiss or give promotions to employees, and
- Possess specialized expertise and education.
But even though these employees may be exempt from the FLSA regulations, employers still need to keep records on their:
- Workweek duties (24 hours within a day, for 7 days a week), and
- The time of the day and the day of the week when the workweek begins.
Although salaried employees earn fixed payments that are not determined by the hours they've worked, a certain daily routine is expected.
To make it official, the FLSA requires information on the time and day of the week when the workweek begins. For example, some companies work on Saturdays but not on Mondays, so they start their workweek on Tuesdays. Additionally, some workers start at 9 a.m.
It's also important to document the following information:
- The wages employees receive for certain periods,
- The employee's personal information (full name, address, gender, date of birth if younger than 19, and social security number),
- Date when the employee receives payment, and
- Information on what period the payment covers.
The importance of tracking employee hours for exempt employees
For exempt employees, it's also beneficial to keep track of employee hours in order to:
- Add additional accountability for employees. Salaried employees can also benefit from tracking their own work hours since it gives them a better control of their tasks, which in turn promotes accountability within an organization.
- Have accurate information on who worked overtime, and how long the overtime was. This will help you:
- Identify whether you should hire additional employees in order to minimize the overtime hours,
- Find out whether you should introduce an app to automate some processes that are contributing to overtime hours, and
- Calculate overtime pay, in accordance with the FLSA requirements.
Recordkeeping rules for non-exempt employees
According to the FLSA, all employees that earn less than $11.38 per working hour (or $23,600 per year) are not exempt (not salaried), so they must be classified as hourly employees.
The same rules apply to certain types of jobs. For example, in tech jobs, if an employee is making less than $27.63 per working hour (or $57,470 per year), they must also be classified as hourly employees.
This type of employees require recordkeeping on information such as:
- Employee personal information,
- Day of the week, and time of the day when their work starts,
- The date when the employee's payment is sent, and
- The period the payment covers.
There are also non-exempt salaried workers who receive annual compensation, but they are still not eligible to be released from the FLSA regulations regarding overtime, and minimum wages.
Employers also have to provide:
- The exact amount and the basis on which the employee's hours are paid (e.g., hourly or weekly rates),
- The rates for overtime earnings for the workweek (specifying whether the compensation is hourly, daily, weekly, or per individual job/project),
- The wages for each period when payments are made,
- The exact amount for all employee payments apart from the regular compensation (including an explanation),
- The total number of hours worked per day and per week,
- The total earnings per day or per week, without overtime pay,
- The total overtime earnings per workweek, and
- The deductions and additions to the employee's regular wages (including the dates and reasons why they were made).
How long are companies required to keep wage records?
According to FLSA requirements, companies are required to keep wage records for a minimum of 2 years. The information they need to keep record of includes:
- The key employment and earnings information,
- Records on billing, order, as well as shipment,
- Records listing and explaining additions and deductions to the arranged wages,
- Straightforward tables showing everyone's wage rates, and
- Straightforward schedule showing work time.
Apart from this information, it's also vital to keep the following records for a minimum of 3 years:
- Payroll records,
- Employee bargaining agreements,
- Sales records, and
- Purchase records.
Do you need to track time for exempt and non-exempt employees?
Regardless of whether your employees are categorized as exempt or non-exempt, time tracking may still be necessary because it provides numerous benefits for both categories. However, if your employees are non-exempt, this requirement is especially important.
On the other hand, exempt workers are not required to keep track of their working hours. However, even if an employee is not subject to the FLSA timekeeping requirements, it is still beneficial to track their work hours. Time tracking gives them detailed insights into the business — it helps them:
- Determine billable hours,
- Manage projects efficiently,
- Calculate the cost of their services,
- Record time offs, and more.
As far as employers are concerned, they may want to maintain records on time spent working for exempt employees in case an employee doesn't show up at work. Time tracking will help them prove that the individual failed to comply with their hourly threshold. So, even though tracking salaried employees' hours is not mandatory by law, it is considered legal.
All in all, some companies want to invest in an employee time tracking system because they simply want to monitor attendance, while others want to keep time records in case a certain employee doesn't meet the exemption requirements.
FLSA timekeeping requirements
In order to be compliant with the FLSA timekeeping requirements, it's important to keep track of employees' hours worked.
When it comes to the timekeeping itself, there are no actual limitations to the timekeeping method used. As we mentioned above, the only requirement is that you must provide precise, correct, and detailed data.
Each company can choose the tool most suited for their workers:
- A time clock. Employees insert a slip of paper card in the time clock. The time clock then prints day and time information on the employee's card.
- A timekeeper. With this method, employers check and authorize all the working hours (timesheets) of hourly and non-exempt employees.
- A timekeeping software. With timekeeping software, each employee records their time individually. They log in the start and end times for each activity, indicating when they arrived at and left work. The recorded data must be precise. For example, if they arrived at 7:56 a.m. and left at 5:02 p.m. the time should be recorded as such.
Companies must keep precise records of the hours worked by non-exempt employees. These records must be kept daily and include:
- The employee's arrival time to work,
- Employee's unpaid break time (start and end times), including lunch,
- The time in the day the employee stops working for the day, and
- The total number of hours worked for each day.
Does FLSA allow time clock rounding?
The FLSA allows time clock rounding, usually for a period of 15 minutes (a full quarter hour):
- If the time entry clocked between 1 and 7 minutes, the time is rounded down and excluded from the report on time worked completely.
- If the time entry clocked between 8 and 14 minutes, the time is rounded up and included in the report on time worked as 15 minutes.
- The time worked can be also rounded to smaller numbers, such as the nearest 6 minutes or 10 minutes.
It's important that the employees average out this time rounding. They should avoid always rounding only up or down but rather combine the two practices for more accurate time results.
Also, bear in mind that the FLSA doesn't strictly require time tracking for exempt employees.
General working rules and employee rights
Adjacent to the Fair Labor Standard Act , the Equal Pay Act of 1963 (EPA) preserves equal rights and employment opportunities for both men and women.
In addition, the FLSA youth employment regulations specify the working hours and conditions for minors.
In other words, these regulations imply that:
- Men and women in the same workplace should receive equal pay for equal work requiring the same skill set, effort, duty, and level of experience.
- Nursing mothers should be provided break time for breastfeeding their baby during the first year of the child's life.
- Children of any age can work for their parent's business, however those under 16 should not work in mining and manufacturing jobs.
- Consequently, children under 18 years of age are also not allowed to work in hazardous occupations.
- Children between 14 and 15 years of age are allowed to work outside school hours under specified hours and conditions, but not in high-risk positions.
- Children between 16 and 17 years of age are allowed to work any hours, but not in potentially dangerous positions listed by the Secretary of Labor.
For more information on occupations forbidden for all minors under 18 years of age, please check the Fair Labor Standard Act regarding child labor regulations.
What happens if you disregard the FLSA requirements?
To be compliant with FLSA, you must always pay at least minimum wages, compensate for all overtime hours, and classify employees properly with exempt or non-exempt status.
If an employer in any way violates the FLSA's overtime or wage regulations, they might risk a lawsuit. That's why it's important to understand the provisions of the Fair Labor Standards Act and keep in mind everything that employers need to do to maintain FLSA compliance.
What are FLSA violations?
Here are the most common violations of the Fair Standard Labor Act:
- Misclassification of employees. Businesses should avoid misclassifying non-exempt employees as exempt. Failure to comply will result in fines and back pay to employees.
- Mixing up salaried workers with hourly workers. Even employees who get flat-rate compensation are not automatically excluded from receiving overtime payments. On the other hand, those paid by the hour are non-exempt from the FLSA regulations.
- Unpaid overtime hours. If the worker is doing any type of work for the company or client outside regular business hours, they should be paid for their overtime work.
- Break of overtime pay agreements. Disregarding the FLSA rules regarding overtime pay by forcing employees to sign such an agreement is also considered a violation.
In case an employer violates the FLSA minimum wage and overtime regulations, an employee may be able to receive back pay or an equal amount of the wages in liquidated damages.
Additionally, a 2-year statute of limitations (the period in which employees can claim unpaid overtime or minimum compensation) applies for unpaid minimum wages or overtime compensation. However, if the employer willfully violated the provisions of the Act, a 3-year statute of limitations will apply. A federal court jury determines willfulness for this purpose, but the employee must provide strong evidence in order to prove that the employer purposefully violated the act.
What's not required and covered by the FLSA?
Most businesses are subject to the FLSA, and they are obliged to make sure their employees are aware of the FLSA rules as well. The rules must be posted in the workplace for everyone to see.
In some cases, certain employers are not exempt from the FLSA requirements, while their employees are exempt. Such an example are airline employees who are not owed any compensation for working off-clock hours. However, these employees get fair monthly compensation in spite of their extra responsibilities.
Additionally, independent contractors and freelancers are not technically considered employees, therefore, they are exempt from FLSA wage and overtime regulations.
The matters not required or covered by the FLSA are the times spent on:
- On holidays (federal or other),
- On vacations,
- On sick leave, and
- On coffee and smoking breaks or meals (though some states have break requirements).
Although it's a usual practice for employers, the FLSA also does not require them to offer:
- Raises in pay,
- Compensation for holidays,
- Compensation for daily commuting to work,
- Extra pay due to break of employment contract,
- Higher pay for work during less desirable hours and days (second or third shift or even weekends), and
- A reason or notification for dismissing an employee.
The FLSA also states that employers are free from making immediate payments to dismissed employees. Rather, they can wait till the next payroll period to issue the final paycheck to the departing employee (regardless of their exempt or non-exempt status). However, some states require companies to pay employees' salaries on the last day of employment or within the next 72 hours (such as California). Additionally, whether employees should receive compensation for unused holiday time or sick leave days upon termination is a matter of state laws.
Are there any other matters not prescribed by the FLSA?
Employees 16 years of age and older may choose to work any number of hours per day or days in a certain week because there are no specific restrictions. However, any work that exceeds over 40 hours per week will be regarded as overtime and should be compensated as such.
There are certain state laws that regulate child labor. For example, according to California child labor laws, minors must undertake an Employment certification (work permit) in order to be eligible to work.
Additionally, the FLSA does not have specific requirements about extra payment if an employee goes to work on:
- The weekends,
- Holidays, or
- Regular days of rest.
For further reading, the United State's Department of Labor provides additional information on FLSA requirements.
FLSA-compliant timekeeping software
Clockify is a free time tracking and timesheet software completely compliant with the FLSA requirements. It is an easy and accurate way to keep track of what and when your employees are working.
Timekeeping features in Clockify
Clockify's key timekeeping features include:
- Web-based time tracking. Employees can track time with the work hours tracker or enter it manually in the Timesheet view. The start and end times of the day are recorded accurately, and you can track the exact number of hours worked, including overtime.
- Overtime alerts. Clockify lets you set automatic alerts. Employees receive notifications about entries longer than 8 hours, indicating they have worked overtime.
- Weekly report for overtime. You can also go to the Weekly report and filter by time and user to see who worked overtime and how long.
- Week start indicator. Clearly indicating the workweek start in reports is important to remain compliant with the FLSA.
- Task assigner for workweek duties. You can keep track of workweek duties by making sure each employee is assigned with the correct task.
- Rounding time entries. With this option, all your entries are rounded up or down to 15, 10, or 6 minutes in Reports.
- Reports. Generate comprehensive reports in just a few clicks and keep these records within the system for as long as needed.
- Hourly rates. You can easily set precise hourly rates for employees on the Team page and make sure all earnings are correctly calculated.
- Employee earnings. You can also use the Summary report to see each employee's earnings within a week. All earnings are stored within the Clockify system and can be accessed at any time.
By choosing FLSA-compliant software, you ensure that you have obtained the record of all the hours worked and followed through with the timekeeping requirements.
Conclusion: The FLSA is an important federal law that establishes basic employment rights
The goal of the Fair Labor Standards Act is to control regulations and restrictions regarding minimum wage, overtime pay, child labor as well as recordkeeping for all employees in the US.
The act advocates for equal rights for all employees, regardless of their age, gender, disability, parent status, pregnancy, or other personal characteristics. Therefore, it is unlawful to discriminate against an individual based on these characteristics in terms of employment conditions.
There are many things to consider to remain compliant with the FLSA code, so always make sure to double-check all the information and don't forget to always be up to date with your state labor laws too.
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