• Lacy Malone Staff

FLSA – What it Stands for and Why Employers Need to Know About it



The Fair Labor Standards Act (FLSA) is a federal bill designed to protect workers by regulating minimum wage, overtime compensation, child labor restrictions, record keeping, and equal pay. In Texas, this legislation is especially important because the state sticks to the FLSA rather than implementing its own regulations. Neglecting to comply with these regulations can be costly, but businesses can avoid FLSA lawsuits by taking three key precautions.


1. Fair Compensation


Many businesses run into trouble with the FLSA when it comes to wages and overtime pay. Employers can avoid these difficulties by making themselves aware of basic FLSA requirements.


The FLSA does require:

  • Compliance with the federal minimum wage of $7.25 per hour, or the state minimum wage if higher.

  • Compliance with the Equal Pay Act – Employers must equally pay men and women who perform the same job at the same levels of skill, experience, and qualification. This includes bonuses, commissions, benefits, and paid leave.

  • Paying overtime compensation (time and a half) to employees for all hours worked outside of the 40-hour work week

The FLSA does not require:

  • Providing employees with raises

  • Offering higher hourly rates for employees working on weekends/holidays

  • Providing pension/retirement plans

Not all employees are subject to the minimum wage and overtime requirements. There are overtime exemptions for certain white collar workers, including some administrators/executives, highly compensated workers, computer technicians, professionals, and salesmen, but never for blue collar workers. Minimum wage exemptions include casual babysitters, certain minors, workers at seasonal establishments, and tipped workers. When filing for exemptions, one should always make sure that the employee's work duties, not merely his or her job title, fit the requirements of the exemption.



It's estimated that over 8.6 million workers in the United States are misclassified, which can lead to costly suits for back-pay.


2. Accurate Timekeeping


Often employers do not properly identify and track overtime hours and unpaid break time.


Overtime


The FLSA bars certain types of timekeeping that tend to short employees on their overtime pay. One of these, called "comp time," is a very common FLSA violation that can lead to serious claims against an employer. "Comp time" occurs when an employer offers a worker future time off instead of paying them the extra overtime wages they owe them for the current week. For example, if an employee worked 48 hours one week, they should be getting eight hours of overtime pay from their employer. If their boss offers them a day off the next week instead, that constitutes "comp time", which is a clear violation of the FLSA. This applies even if the employee explicitly chooses the day off instead of overtime pay. Similar attempts to skimp on overtime pay, like averaging several work weeks to calculate overtime pay, are also barred by the FLSA. Employers must also pay for unauthorized overtime hours even if they occur in violation of a company policy.


Unpaid breaks and idle time


Providing rest/lunch breaks (except for nursing mothers) is not required by the FLSA. However, there are rules that employers must follow if they decide to offer breaks for their employees.


Short breaks that last usually less than twenty minutes, like coffee breaks, are considered beneficial to productivity and must be paid. Other types of paid time that may appear idle include waiting time and on-call time. For example, a receptionist reading a magazine at his desk waiting for the phone to ring is entitled to compensation for that time. As a general rule, if an employee is not fully relieved from duty, e.g. during a desk lunch when they are answering emails, they must be compensated for their time.


Off-the-clock work


Work done outside of the regular work day must be compensated under the FLSA. This includes pre and post-shift work, "rework" where an employer asks an employee to correct a mistake on their own time, and even answering work related correspondence at home.


In any of these cases, proper timekeeping is an essential defense against FLSA claims in court.


3. Properly Classifying Interns and Independent Contractors


Many businesses think hiring unpaid interns or independent contractors is a smart way to save on labor. This becomes a liability when employers are unaware of the guidelines that dictate whether the FLSA covers these workers.


Interns


In determining the status of an intern, an employer should consider:

  • The extent to which the intern and the employer clearly understand there is no expectation of compensation (Any promise of compensation suggests the intern is an employee.)

  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions

  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit

  • The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar

  • The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning

  • The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern

  • The extent to which the intern and the employer understand the internship is conducted without entitlement to a paid job at the conclusion of the internship


It all boils down to one essential question: Is the primary beneficiary of the relationship the employer, or the intern?

If the employer is deriving the most benefit, the odds are that the intern must be paid under the FLSA.


Independent contractors


Likewise, the status of an independent contractor is determined not by their job title, but by their responsibilities. The issue goes to the nature of the employer-contractor relationship. If the contractor is dependent on the employer for income, direction, and supplies, they are more likely to be an employee who is subject to the FLSA.


Employers should consider:

  • The extent to which the worker's services are an integral part of the employer's business

  • The permanency of the relationship

  • The amount of the worker's investment in facilities and equipment

  • The nature and degree of control by the principal. For example, who decides on what hours to be worked? Does the worker work for any other companies? Who sets the pay rate?

  • The worker's opportunities for profit and loss. For example, can the worker earn a profit by performing the job more efficiently or exercising managerial skill or suffer a loss of capital investment?

  • The level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise. For example, does the worker advertise independently or have a separate business site?


The majority of FLSA issues arise from benign ignorance of the law. However, that is not enough to protect employers from expensive disputes. Employers can prevent FLSA claims beforehand by proper classification and record keeping, whether that be of paid/unpaid time, exemption status, or employee status.



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