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National
The Fair Labor Standards Act (FLSA), also known as the federal Wage and Hour Law, regulates minimum wage, overtime, equal pay, recordkeeping, and child labor for employees of enterprises engaged in interstate or foreign commerce and employees of state and local governments. Please see the national Child Labor, national Equal Pay/Comparable Worth, national Records sections. The FLSA is enforced by the Wage and Hour Division of DOL. Although the FLSA applies in all states, it permits states to regulate areas not covered by the FLSA and to afford workers greater protections. Where state law and the FLSA conflict, employers must follow the provision that is more favorable to the employee. There are a number of employment practices that the FLSA does not regulate. For example, it does not require vacation, holiday, severance, or sick pay; meal or rest periods; time off for holidays or vacations; premium pay for weekend or holiday work; pay raises or fringe benefits; and a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees.
Employers subject to the FLSA include:
1. All enterprises engaged in interstate commerce or the production of goods for interstate commerce
2. All hospitals, schools, and public agencies, regardless of size
Small businesses that are not engaged in interstate commerce and have an annual gross volume under $500,000 are not covered.
Employees of firms that are not covered by the FLSA may still be subject to its provisions if they are individually engaged in interstate commerce or in the production of goods for interstate commerce. This includes employees who work in communications or transportation; regularly use the mail, telephones, or telegraph for interstate communication, or keep records of interstate transactions; handle, ship, or receive goods moving in interstate commerce; regularly cross state lines in the course of employment; or work for independent employers that contract to do clerical, custodial, maintenance, or other work for firms engaged in interstate commerce or in the production of goods for interstate commerce.
In May 2016, the federal Department of Labor (DOL) released final changes to the overtime regulations. With this final rule, the DOL sought to update the salary level required for exemption to ensure that FLSA’s intended overtime protections would be fully implemented and to simplify the identification of nonexempt employees, thus making the executive, administrative, and professional employee exemption easier for employers and workers to understand and apply. These changes were to be effective on December 1, 2016. But, just a week before the December 1, 2016, effective date, the U.S. District Court for the Eastern District of Texas granted an emergency motion enjoining the DOL from enforcing the new overtime rule on a nationwide basis. This means that until further action from the courts, Congress, or the new administration, the minimum salary threshold for the white-collar exemptions will remain where it has been since 2004, at $455 a week. The salary threshold for the highly compensated employee (HCE) exemption will remain at $100,000 per year.
For employers that made plans to reclassify employees as nonexempt rather than raise their salaries to the $913–per-week level that was included in the new rule, these employees may continue to be treated as exempt (for now), as long as they otherwise qualify for exemption. Employers that took steps to raise the salaries of exempt employees will have to carefully consider their next steps, as taking back salary increases will likely create an employee relations problem, and as of right now, the decision on the rule is temporary.
Below is a summary of the regulations on hold for now:
Salary level. The most prominent change would be the increase in the salary level required for exemption from overtime to an annual salary of $47,476. This translates to a weekly salary of $913. This means that your employees who currently earn more than $455 per week ($23,660 annually), but less than $913 per week, would need to be reclassified as nonexempt, if the regulations eventually become effective, and would be entitled to overtime for any hours worked over 40 in a week. The DOL seeks to increase the salary level for employees in American Samoa to $767 per week. In addition, the base rate for employees in the motion picture industry would increase to $1,397 per week.
Automatic adjustments every 3 years. The DOL seeks to automatically update the standard salary and compensation levels every 3 years going forward. The DOL aims to set the salary level at the 40th percentile of full-time salaried workers in the lowest income region in the country, which is currently the South.
Salary level for executive, administrative, and professional employees. In order to be exempt from overtime, executive, administrative, and professional employees would have to be compensated on a salary basis of at least $913 per week, exclusive of board, lodging, or other facilities, and meet the duties tests.
Computer professionals. The overtime exemption would apply to any computer employee who is compensated on a salary or fee basis at a rate of $913 per week or more, or on an hourly basis at a rate of at least $27.63 an hour, and meets the duties tests.
HCEs. The DOL aims to set the total annual compensation level for HCEs at $134,004 per year, up from the current threshold of $100,000. This compensation level is equal to the 90th percentile of earnings of full-time salaried workers nationally. According to the DOL, to be exempt as an HCE, an employee would also have to receive at least a standard salary amount of $913 per week on a salary or fee basis and pass a minimal duties test. An HCE must customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee and have the primary duty of performing office or nonmanual work.
Duties tests remain the same. The DOL did not alter the duties tests for exemption. Therefore, employers would follow the duties tests that they have been familiar with since 2004.
Counting bonuses and incentive payments toward the salary level. If the new regulations eventually go through, employers would be able to count nondiscretionary bonuses, incentive payments, and commissions toward as much as 10 percent of the salary threshold. In order to count, these payments would have to be paid on a quarterly or more frequent basis. The new rules would also permit the employer to make a catch-up payment. An HCE’s annual compensation would continue to include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned, as it has in the past. An HCE would also have to receive at least the new standard salary amount of $913 per week on a salary or fee basis.
Fee basis. Under DOL’s final regulations, administrative and professional employees would still be able to be paid on a fee basis rather than on a salary basis. To determine whether the fee payment met the minimum amount of salary required for exemption, the amount paid to the employee would be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to $913 per week if the employee worked 40 hours. For example, an artist paid $500 for a picture that took 20 hours to complete would meet the minimum salary requirement for exemption, since earnings at this rate would yield the artist $1,000 if 40 hours were worked.
Educational establishments. Under DOL’s final regulations on hold for now, employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment or department would be exempt if they were compensated on a salary or fee basis of at least $913 per week (or $767 per week, if employed in American Samoa by employers other than the federal government), exclusive of board, lodging, or other facilities, or on a salary basis that is at least equal to the entrance salary for teachers in the educational establishment in which they are employed.
Computing compensation. An exempt employee’s earnings may be computed on an hourly, daily, or shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis, regardless of the number of hours, days, or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test would be met if the weekly guarantee was roughly equivalent to the employee’s usual earnings at the assigned hourly, daily, or shift rate for the employee’s normal scheduled workweek. Under DOL’s final regulations, for example, where the weekly salary level required for exemption would be $913, an exempt employee guaranteed compensation of at least $1,000 for any week in which the employee performs any work, and who normally works four shifts each week, could be paid $300 per shift without violating the salary basis requirement. The reasonable relationship requirement applies only if the employee’s pay is computed on an hourly, daily, or shift basis. It does not apply, for example, to an exempt store manager paid a guaranteed salary per week that exceeds the current salary level who also receives a commission of one-half percent of all sales in the store or 5 percent of the store’s profits, which in some weeks may total as much as, or even more than, the guaranteed salary.
Nonexempt employees are those who are covered by the FLSA minimum wage and overtime pay provisions. An employee who is paid on an hourly basis is usually considered to be nonexempt, regardless of the hourly rate paid. (There is an exception: Computer programmers, systems analysts, and similar employees may be exempt if they are paid at an hourly rate of $27.63 or more.) Employees are also nonexempt if they do not qualify for one of several “white-collar” exemptions. Employees generally classified as nonexempt include, but are not limited to, clerical, blue-collar, maintenance, construction, and semiskilled workers, as well as technicians and laborers.
DOL regulations make it clear that manual laborers or other employees who perform work involving repetitive operations with their hands, physical skill, and energy are nonexempt. Thus, nonmanagement employees in production, maintenance, construction, and similar occupations are nonexempt no matter how highly paid they might be. The regulations also make it clear that police officers, firefighters, paramedics, and other so-called “first responders,” such as detectives, deputy sheriffs, and state troopers, are not exempt employees and are entitled to overtime pay.
The FLSA exempts broad categories of “white-collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories include executives, administrative employees, professional employees, outside and certain retail sales personnel, and highly compensated individuals. Please see the national Exempt Personnel section.
Employers should periodically review the classification of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing.
Motor Carrier Act (MCA) exemption. Under the MCA exemption to the FLSA, the overtime provisions of the FLSA do not apply to motor carriers, such as truck drivers and their helpers, operating in interstate commerce. The exemption is not limited to those who ship large amounts of property or ship property as their principal business. A U.S. appellate court has held that the exemption extends to field engineers who carry tools, parts, and equipment in their private cars on interstate trips to install, maintain, and repair computers (Friedrich v. CableData, 974 F.2d 409 (CA-3, 1992)). However, such personnel are still covered by the equal pay, minimum wage, and recordkeeping requirements of the FLSA.
The FLSA provides for a number of miscellaneous exemptions from either the minimum wage or overtime requirements or from both.
Minimum wage and overtime exemptions. Among the occupations exempt from both the FLSA minimum wage and overtime provisions are:
• Employees of certain seasonal amusement or recreational establishments
• Employees in fishing operations and in initial processing of seafood
• Agricultural workers employed by employers using less than 500 man-days in any quarter of the previous year
• Agricultural workers who are members of the employer's immediate family
• Locally based hand harvest workers traditionally paid a piece rate who worked less than 13 weeks in agriculture during the preceding calendar year
• Certain local seasonal harvesters under the age of 17
• Employees who principally work in the range production of livestock
• Seafarers on foreign vessels
• Newspaper carriers who deliver to consumers
• Persons employed outside the United States for the entire workweek
• Employees of gas stations with annual sales of less than $250,000
Overtime exemptions. Among the occupations exempt from overtime requirements are:
• Employees of interstate motor carriers, airlines, and railroads
• Outside buyers of poultry and dairy products
• Any employee employed as a seaman
• Motor vehicle sales and service personnel
• Trailer, boat, or aircraft salespersons not working for manufacturers
• Certain drivers and helpers on local delivery
• Agricultural employees, including employees working for nonprofit or cooperative agricultural water storage or suppliers
• Employees engaged in the initial transportation of fruits and vegetables from a farm
• Taxi drivers
• Employees of police and fire departments with fewer than five employees
• Movie theater employees
Partial overtime exemptions. A few categories of workers have partial exemptions from the FLSA overtime requirements. These include:
• Certain employees of amusement and recreational establishments located in national parks and similar facilities if paid overtime for hours after 56 hours in a workweek
• Bulk or wholesale petroleum distributors if paid overtime for hours after 56 hours in a workweek
• Employees receiving literacy training for 10 hours per workweek
• Hospital and nursing home employees if paid overtime after 8 hours per day or 80 hours during 2-week periods
The FLSA states that it is a violation for any person to discharge or in any other manner discriminate against any employee because the employee has filed any complaint or instituted or caused to be instituted any proceeding under the FLSA, has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee.
Employees are protected regardless of whether the complaint is made orally or in writing. Complaints made to the Wage and Hour Division are protected, and most courts have ruled that internal complaints to an employer are also protected.
Because the law prohibits any person from retaliating against any employee, the protection applies to all employees of an employer even if the employee’s work and the employer are not covered by the FLSA. The law also applies in situations where there is no current employment relationship between the parties; for example, it protects an employee from retaliation by a former employer.
Any employee who is discharged or in any other manner discriminated against may file a retaliation complaint with the Wage and Hour Division or may file a suit seeking remedies, including, but not limited to, employment, reinstatement, lost wages, and an additional equal amount as liquidated damages.
Internships in the for-profit, private sector will most often be viewed as employment by the DOL, unless the test described below is met. Interns who qualify as employees rather than trainees, typically must be paid at least the minimum wage and overtime compensation for hours worked over 40 in a workweek. According to the DOL, if all of the following six factors are met, an employment relationship does not exist between an intern and the company that sponsors the participant.
• The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
• The internship experience is for the benefit of the intern;
• The intern does not displace regular employees, but works under close supervision of existing staff;
• The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
• The intern is not necessarily entitled to a job at the conclusion of the internship; and
• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If no employment relationship exists, the participants are not subject to the FLSA.
In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances, the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent on the work of the intern.
On the other hand, if the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work, or assisting customers), even though they may receive some benefits in the form of a new skill or improved work habits, an employment relationship may still exist because the employer also benefits from the interns’ work.
If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific periods, these interns must be paid at least the minimum wage and overtime. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, the interns will be viewed as employees. Conversely, if the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees and the intern performs no or minimal work, the activity is more likely to be viewed as a bona fide educational experience. If the intern receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.
An unpaid internship should be of a fixed duration, established before the outset of the internship. Further, unpaid internships generally should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, that individual generally would be considered an employee under the FLSA.
Nonprofit organizations are not automatically exempt from the FLSA. There are basically two types of nonprofits. First are nonprofits that engage solely in charitable activities and do not engage in commerce. These nonprofit organizations would be exempt from the FLSA. Second are nonprofits that have a charitable purpose but do engage in commerce whether to reach their ultimate goal of charity or to entertain their target audience. These nonprofits are not exempt.
Religious institutions are not automatically exempt from the FLSA. Many religious organizations do operate businesses. The FLSA does cover the ordinary commercial activities of religious organizations. If a religious organization runs a hospital, school, or residential care institution, it will be covered by the FLSA. Enterprise coverage, however, is not applicable to employees who are engaged exclusively in the operation of a religious organization, because their activities are not performed for a business purpose.
DOL's Field Operations Handbook states that there is no provision in the FLSA that prohibits an employer-employee relationship between a religious, charitable, or nonprofit organization and people who perform work for the organization. For example, a church or religious institution may operate an establishment to print books and employ a regular staff who do this work as a means of livelihood. In such cases, an employer-employee relationship would exist under the FLSA.
The Handbook also states that "persons such as nuns, monks, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order shall not be considered to be ‘employees.’" However, the Handbook also states that the fact that such a person is a member of a religious order does not automatically preclude an employer-employee relationship. This rule is rather ambiguous, and an employer should consider consulting an attorney to determine whether an employer-employee relationship exists in this situation.
State and local government employers, defined as public agencies by the FLSA, are covered by the Act. "Public agencies" are the federal government, the government of a state or political subdivision of a state, any state or federal agency, or any interstate governmental agency. The public agency definition does not extend to private companies that are engaged in work activities normally performed by public employees.
Certain employees of a public agency who, solely at their own option, occasionally or sporadically work on a part-time basis for the same public agency in a capacity other than the one in which they are primarily employed may be exempt from the overtime requirements of the FLSA.
Police. Public law enforcement personnel are covered by the FLSA. Law enforcement personnel are employees who are empowered by state or local ordinance to enforce laws designed to maintain peace and order, protect life and property, and to prevent and detect crimes; who have the power to arrest; and who have undergone training in law enforcement.
Firefighters. Public firefighters are covered by the FLSA. Fire protection personnel employed by a fire department include firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, or hazardous materials workers who are:
• Trained in fire suppression,
• Have the legal authority and responsibility to engage in fire suppression, and
• Are engaged in the prevention, control and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk.
The FLSA provides that employees engaged in fire protection or law enforcement may be paid overtime on a work period basis. A "work period" may be from 7 to 28 consecutive days. For example, fire protection personnel are due overtime under such a plan after 212 hours worked during a 28-day period, while law enforcement personnel must receive overtime after 171 hours worked during a 28-day period. For work periods of at least 7 but fewer than 28 days, overtime pay is required when the number of hours worked exceeds the number of hours that bears the same relationship to 212 (fire) or 171 (police) as the number of days in the work period compares to 28.
Exception. The FLSA provides an overtime exemption to law enforcement or fire protection employees of a public agency that employs fewer than five employees in law enforcement or fire protection activities.
Under the FLSA, an employer must pay minimum wage and overtime, but the Supreme Court has made it clear that the FLSA was not intended to stamp out volunteering. The FLSA recognizes the generosity and public benefits of volunteering and allows individuals to freely volunteer time to religious, charitable, civic, humanitarian, or similar nonprofit organizations as a public service. Volunteers will ordinarily not be considered employees for FLSA purposes if the individuals volunteer for organizations without contemplation or receipt of compensation. Additionally, the volunteer services must be given freely without coercion or undue pressure.
Due to the possibility of coercion to perform unpaid services, paid employees may not volunteer to perform the same type of services for their employer that they are normally employed to perform. Time spent in work for public or charitable purposes at the employer’s request, under the employer's direction or control, or while the employee is required to be on premises is working time. However, time spent voluntarily in such activities outside of the employee’s normal working hours is not hours worked, as long as the volunteer activities are not the same or similar to the activities the employee is employed to perform. Therefore, the employer must compensate employees for the hours spent volunteering during their normal working hours or when the volunteer work performed is similar to their regular duties. As for those employees who perform duties that are not similar to their regular duties and that are voluntarily performed after their normal working hours, those volunteer activities are not considered hours worked for the purpose of the FLSA.
A workweek is a period of 168 hours during 7 consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
An employer must generally pay an exempt employee the full salary for any workweek in which the employee performs any work without regard to the number of days or hours worked. An exempt employee's salary may be reduced when the employee is absent from work for a day or more for personal reasons, when an employee is absent a day or more because of sickness or disability if the deduction is made under a bona fide sick pay or disability pay plan, for absence due to an unpaid disciplinary suspension for violation of workplace conduct rules, for any time interval in which an employee is on leave under the federal Family and Medical Leave Act (FMLA), and for absence due to an unpaid disciplinary suspension for violation of a major safety rule. Please see the national Salaried Employee section.
“Hours worked” includes all time an employee must be on duty, on the employer's premises, or at any other prescribed place of work, as well as any additional time the employee is permitted to work.
The current federal minimum wage is $7.25 per hour. The FLSA does not supersede any state or local laws that are more favorable to employees. Therefore, if a state has a minimum wage that is higher than the federal minimum, employers subject to the state minimum wage law are obligated to pay the higher rate to employees working in that state.
Please see the state Minimum Wage section.
An employer may pay four groups of employees below the minimum wage: people with mental or physical disabilities, full-time students, certain employees under age 20, and certain employees who receive tips.
Covered employers must post notices outlining the federal minimum wage requirements. The notices must be posted conspicuously and in enough places so employees can see them as they enter and exit the workplace. Posters are available from the U.S. DOL, Wage and Hour Division, and may be downloaded from its website at http://www.dol.gov.
Opportunity wage. New hires under the age of 20 may be paid an “opportunity wage” of $4.25 per hour during the first 90 calendar days of employment. Employers may not displace any current employee in order to hire a worker at the opportunity wage.
Students. Full-time students may be employed at 85 percent of the minimum rate by retail stores and some service establishments upon obtaining a certificate from the federal wage and hour administrator.
Tipped employees. An employer may apply an employee's tips as a credit toward the minimum hourly wage, up to $5.12 per hour (i.e., the employer must pay at least $2.13 per hour in direct wages). This applies only to employees who customarily earn more than $30 per month in tips and who actually receive tips equal to or greater than the amount of the credit. Many states have stricter rules for tip credits. When the minimum wage rate increases, the tip credit will increase by the difference between $2.13 and the new minimum wage amount.
Please see the state Minimum Wage section.
FLSA regulations require employers to inform an employee before implementing a tip credit. Unless an employer gives proper notice, the employer will not be eligible to use a tip credit. According to the final rule, the notice has to include the following explanation:
• The amount of the cash wage the employer pays the employee, which cannot be less than $2.13 per hour;
• The additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage ($7.25) and the actual cash wage paid by the employer to the employee;
• That the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;
• That the tip credit cannot be applied to any tipped employee unless the employee has been informed of the tip credit provisions of the FLSA; and
• That all tips received by the tipped employee must be retained by the employee, except for valid pooling of tips.
Employers must also notify employees of any required tip pool contribution amount.
The FLSA requires that overtime must be paid at a rate of 11/2 times a covered (nonexempt) employee's regular rate of pay for each hour worked in excess of 40 hours in a workweek (or the maximum allowable in a given type of employment). The FLSA does not require that overtime be paid for hours worked in excess of 8 hours per day or on weekends or holidays. (Some states require overtime to be computed on a daily hour basis.
Please see the state Overtime section.
Only hours worked count in the overtime calculation. Therefore, holidays not worked, vacation days, sick days, etc., are not counted. The fact that an employee receives holiday pay, vacation pay, or sick pay is of no consequence for overtime purposes. The test is hours worked rather than hours paid.
Although overtime must be computed weekly, the FLSA does not require that it be paid on a weekly basis; it only requires that overtime be paid in the next regular pay period following the period in which the overtime is earned.
An employer may require an exempt employee to work more than 40 hours in a workweek without having to pay a premium for overtime hours.
Please see the national Overtime section.
Please see the state Overtime section.
The FLSA does not apply to any employee whose services during the workweek are performed in a workplace within a foreign country (9 U.S.C. Sec. 213(f)). Therefore, the FLSA would not apply to a U.S. citizen (or non-U.S. citizen) working in China for an American company.
Covered employers must post notices outlining the federal minimum wage and overtime regulations. The notices must be posted conspicuously and in enough places so that employees can see them as they enter and exit the workplace. Posters are available from DOL Wage and Hour Division.
To obtain additional information from the Wage and Hour Division, including how to contact a regional or district office of the Wage and Hour Division, contact:
U.S. Department of Labor Wage and Hour Division
200 Constitution Avenue, NW
Washington, DC 20210
202-693-0051
Last updated on November 23, 2016.
Related Topics:
National
The Fair Labor Standards Act (FLSA), also known as the federal Wage and Hour Law, regulates minimum wage, overtime, equal pay, recordkeeping, and child labor for employees of enterprises engaged in interstate or foreign commerce and employees of state and local governments. Please see the national Child Labor, national Equal Pay/Comparable Worth, national Records sections. The FLSA is enforced by the Wage and Hour Division of DOL. Although the FLSA applies in all states, it permits states to regulate areas not covered by the FLSA and to afford workers greater protections. Where state law and the FLSA conflict, employers must follow the provision that is more favorable to the employee. There are a number of employment practices that the FLSA does not regulate. For example, it does not require vacation, holiday, severance, or sick pay; meal or rest periods; time off for holidays or vacations; premium pay for weekend or holiday work; pay raises or fringe benefits; and a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees.
Employers subject to the FLSA include:
1. All enterprises engaged in interstate commerce or the production of goods for interstate commerce
2. All hospitals, schools, and public agencies, regardless of size
Small businesses that are not engaged in interstate commerce and have an annual gross volume under $500,000 are not covered.
Employees of firms that are not covered by the FLSA may still be subject to its provisions if they are individually engaged in interstate commerce or in the production of goods for interstate commerce. This includes employees who work in communications or transportation; regularly use the mail, telephones, or telegraph for interstate communication, or keep records of interstate transactions; handle, ship, or receive goods moving in interstate commerce; regularly cross state lines in the course of employment; or work for independent employers that contract to do clerical, custodial, maintenance, or other work for firms engaged in interstate commerce or in the production of goods for interstate commerce.
In May 2016, the federal Department of Labor (DOL) released final changes to the overtime regulations. With this final rule, the DOL sought to update the salary level required for exemption to ensure that FLSA’s intended overtime protections would be fully implemented and to simplify the identification of nonexempt employees, thus making the executive, administrative, and professional employee exemption easier for employers and workers to understand and apply. These changes were to be effective on December 1, 2016. But, just a week before the December 1, 2016, effective date, the U.S. District Court for the Eastern District of Texas granted an emergency motion enjoining the DOL from enforcing the new overtime rule on a nationwide basis. This means that until further action from the courts, Congress, or the new administration, the minimum salary threshold for the white-collar exemptions will remain where it has been since 2004, at $455 a week. The salary threshold for the highly compensated employee (HCE) exemption will remain at $100,000 per year.
For employers that made plans to reclassify employees as nonexempt rather than raise their salaries to the $913–per-week level that was included in the new rule, these employees may continue to be treated as exempt (for now), as long as they otherwise qualify for exemption. Employers that took steps to raise the salaries of exempt employees will have to carefully consider their next steps, as taking back salary increases will likely create an employee relations problem, and as of right now, the decision on the rule is temporary.
Below is a summary of the regulations on hold for now:
Salary level. The most prominent change would be the increase in the salary level required for exemption from overtime to an annual salary of $47,476. This translates to a weekly salary of $913. This means that your employees who currently earn more than $455 per week ($23,660 annually), but less than $913 per week, would need to be reclassified as nonexempt, if the regulations eventually become effective, and would be entitled to overtime for any hours worked over 40 in a week. The DOL seeks to increase the salary level for employees in American Samoa to $767 per week. In addition, the base rate for employees in the motion picture industry would increase to $1,397 per week.
Automatic adjustments every 3 years. The DOL seeks to automatically update the standard salary and compensation levels every 3 years going forward. The DOL aims to set the salary level at the 40th percentile of full-time salaried workers in the lowest income region in the country, which is currently the South.
Salary level for executive, administrative, and professional employees. In order to be exempt from overtime, executive, administrative, and professional employees would have to be compensated on a salary basis of at least $913 per week, exclusive of board, lodging, or other facilities, and meet the duties tests.
Computer professionals. The overtime exemption would apply to any computer employee who is compensated on a salary or fee basis at a rate of $913 per week or more, or on an hourly basis at a rate of at least $27.63 an hour, and meets the duties tests.
HCEs. The DOL aims to set the total annual compensation level for HCEs at $134,004 per year, up from the current threshold of $100,000. This compensation level is equal to the 90th percentile of earnings of full-time salaried workers nationally. According to the DOL, to be exempt as an HCE, an employee would also have to receive at least a standard salary amount of $913 per week on a salary or fee basis and pass a minimal duties test. An HCE must customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee and have the primary duty of performing office or nonmanual work.
Duties tests remain the same. The DOL did not alter the duties tests for exemption. Therefore, employers would follow the duties tests that they have been familiar with since 2004.
Counting bonuses and incentive payments toward the salary level. If the new regulations eventually go through, employers would be able to count nondiscretionary bonuses, incentive payments, and commissions toward as much as 10 percent of the salary threshold. In order to count, these payments would have to be paid on a quarterly or more frequent basis. The new rules would also permit the employer to make a catch-up payment. An HCE’s annual compensation would continue to include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned, as it has in the past. An HCE would also have to receive at least the new standard salary amount of $913 per week on a salary or fee basis.
Fee basis. Under DOL’s final regulations, administrative and professional employees would still be able to be paid on a fee basis rather than on a salary basis. To determine whether the fee payment met the minimum amount of salary required for exemption, the amount paid to the employee would be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to $913 per week if the employee worked 40 hours. For example, an artist paid $500 for a picture that took 20 hours to complete would meet the minimum salary requirement for exemption, since earnings at this rate would yield the artist $1,000 if 40 hours were worked.
Educational establishments. Under DOL’s final regulations on hold for now, employees whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment or department would be exempt if they were compensated on a salary or fee basis of at least $913 per week (or $767 per week, if employed in American Samoa by employers other than the federal government), exclusive of board, lodging, or other facilities, or on a salary basis that is at least equal to the entrance salary for teachers in the educational establishment in which they are employed.
Computing compensation. An exempt employee’s earnings may be computed on an hourly, daily, or shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis, regardless of the number of hours, days, or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The reasonable relationship test would be met if the weekly guarantee was roughly equivalent to the employee’s usual earnings at the assigned hourly, daily, or shift rate for the employee’s normal scheduled workweek. Under DOL’s final regulations, for example, where the weekly salary level required for exemption would be $913, an exempt employee guaranteed compensation of at least $1,000 for any week in which the employee performs any work, and who normally works four shifts each week, could be paid $300 per shift without violating the salary basis requirement. The reasonable relationship requirement applies only if the employee’s pay is computed on an hourly, daily, or shift basis. It does not apply, for example, to an exempt store manager paid a guaranteed salary per week that exceeds the current salary level who also receives a commission of one-half percent of all sales in the store or 5 percent of the store’s profits, which in some weeks may total as much as, or even more than, the guaranteed salary.
Nonexempt employees are those who are covered by the FLSA minimum wage and overtime pay provisions. An employee who is paid on an hourly basis is usually considered to be nonexempt, regardless of the hourly rate paid. (There is an exception: Computer programmers, systems analysts, and similar employees may be exempt if they are paid at an hourly rate of $27.63 or more.) Employees are also nonexempt if they do not qualify for one of several “white-collar” exemptions. Employees generally classified as nonexempt include, but are not limited to, clerical, blue-collar, maintenance, construction, and semiskilled workers, as well as technicians and laborers.
DOL regulations make it clear that manual laborers or other employees who perform work involving repetitive operations with their hands, physical skill, and energy are nonexempt. Thus, nonmanagement employees in production, maintenance, construction, and similar occupations are nonexempt no matter how highly paid they might be. The regulations also make it clear that police officers, firefighters, paramedics, and other so-called “first responders,” such as detectives, deputy sheriffs, and state troopers, are not exempt employees and are entitled to overtime pay.
The FLSA exempts broad categories of “white-collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories include executives, administrative employees, professional employees, outside and certain retail sales personnel, and highly compensated individuals. Please see the national Exempt Personnel section.
Employers should periodically review the classification of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing.
Motor Carrier Act (MCA) exemption. Under the MCA exemption to the FLSA, the overtime provisions of the FLSA do not apply to motor carriers, such as truck drivers and their helpers, operating in interstate commerce. The exemption is not limited to those who ship large amounts of property or ship property as their principal business. A U.S. appellate court has held that the exemption extends to field engineers who carry tools, parts, and equipment in their private cars on interstate trips to install, maintain, and repair computers (Friedrich v. CableData, 974 F.2d 409 (CA-3, 1992)). However, such personnel are still covered by the equal pay, minimum wage, and recordkeeping requirements of the FLSA.
The FLSA provides for a number of miscellaneous exemptions from either the minimum wage or overtime requirements or from both.
Minimum wage and overtime exemptions. Among the occupations exempt from both the FLSA minimum wage and overtime provisions are:
• Employees of certain seasonal amusement or recreational establishments
• Employees in fishing operations and in initial processing of seafood
• Agricultural workers employed by employers using less than 500 man-days in any quarter of the previous year
• Agricultural workers who are members of the employer's immediate family
• Locally based hand harvest workers traditionally paid a piece rate who worked less than 13 weeks in agriculture during the preceding calendar year
• Certain local seasonal harvesters under the age of 17
• Employees who principally work in the range production of livestock
• Seafarers on foreign vessels
• Newspaper carriers who deliver to consumers
• Persons employed outside the United States for the entire workweek
• Employees of gas stations with annual sales of less than $250,000
Overtime exemptions. Among the occupations exempt from overtime requirements are:
• Employees of interstate motor carriers, airlines, and railroads
• Outside buyers of poultry and dairy products
• Any employee employed as a seaman
• Motor vehicle sales and service personnel
• Trailer, boat, or aircraft salespersons not working for manufacturers
• Certain drivers and helpers on local delivery
• Agricultural employees, including employees working for nonprofit or cooperative agricultural water storage or suppliers
• Employees engaged in the initial transportation of fruits and vegetables from a farm
• Taxi drivers
• Employees of police and fire departments with fewer than five employees
• Movie theater employees
Partial overtime exemptions. A few categories of workers have partial exemptions from the FLSA overtime requirements. These include:
• Certain employees of amusement and recreational establishments located in national parks and similar facilities if paid overtime for hours after 56 hours in a workweek
• Bulk or wholesale petroleum distributors if paid overtime for hours after 56 hours in a workweek
• Employees receiving literacy training for 10 hours per workweek
• Hospital and nursing home employees if paid overtime after 8 hours per day or 80 hours during 2-week periods
The FLSA states that it is a violation for any person to discharge or in any other manner discriminate against any employee because the employee has filed any complaint or instituted or caused to be instituted any proceeding under the FLSA, has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee.
Employees are protected regardless of whether the complaint is made orally or in writing. Complaints made to the Wage and Hour Division are protected, and most courts have ruled that internal complaints to an employer are also protected.
Because the law prohibits any person from retaliating against any employee, the protection applies to all employees of an employer even if the employee’s work and the employer are not covered by the FLSA. The law also applies in situations where there is no current employment relationship between the parties; for example, it protects an employee from retaliation by a former employer.
Any employee who is discharged or in any other manner discriminated against may file a retaliation complaint with the Wage and Hour Division or may file a suit seeking remedies, including, but not limited to, employment, reinstatement, lost wages, and an additional equal amount as liquidated damages.
Internships in the for-profit, private sector will most often be viewed as employment by the DOL, unless the test described below is met. Interns who qualify as employees rather than trainees, typically must be paid at least the minimum wage and overtime compensation for hours worked over 40 in a workweek. According to the DOL, if all of the following six factors are met, an employment relationship does not exist between an intern and the company that sponsors the participant.
• The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
• The internship experience is for the benefit of the intern;
• The intern does not displace regular employees, but works under close supervision of existing staff;
• The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
• The intern is not necessarily entitled to a job at the conclusion of the internship; and
• The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If no employment relationship exists, the participants are not subject to the FLSA.
In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. Under these circumstances, the intern does not perform the routine work of the business on a regular and recurring basis, and the business is not dependent on the work of the intern.
On the other hand, if the interns are engaged in the operations of the employer or are performing productive work (for example, filing, performing other clerical work, or assisting customers), even though they may receive some benefits in the form of a new skill or improved work habits, an employment relationship may still exist because the employer also benefits from the interns’ work.
If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific periods, these interns must be paid at least the minimum wage and overtime. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, the interns will be viewed as employees. Conversely, if the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees and the intern performs no or minimal work, the activity is more likely to be viewed as a bona fide educational experience. If the intern receives the same level of supervision as the employer’s regular workforce, this would suggest an employment relationship, rather than training.
An unpaid internship should be of a fixed duration, established before the outset of the internship. Further, unpaid internships generally should not be used by the employer as a trial period for individuals seeking employment at the conclusion of the internship period. If an intern is placed with the employer for a trial period with the expectation that he or she will then be hired on a permanent basis, that individual generally would be considered an employee under the FLSA.
Nonprofit organizations are not automatically exempt from the FLSA. There are basically two types of nonprofits. First are nonprofits that engage solely in charitable activities and do not engage in commerce. These nonprofit organizations would be exempt from the FLSA. Second are nonprofits that have a charitable purpose but do engage in commerce whether to reach their ultimate goal of charity or to entertain their target audience. These nonprofits are not exempt.
Religious institutions are not automatically exempt from the FLSA. Many religious organizations do operate businesses. The FLSA does cover the ordinary commercial activities of religious organizations. If a religious organization runs a hospital, school, or residential care institution, it will be covered by the FLSA. Enterprise coverage, however, is not applicable to employees who are engaged exclusively in the operation of a religious organization, because their activities are not performed for a business purpose.
DOL's Field Operations Handbook states that there is no provision in the FLSA that prohibits an employer-employee relationship between a religious, charitable, or nonprofit organization and people who perform work for the organization. For example, a church or religious institution may operate an establishment to print books and employ a regular staff who do this work as a means of livelihood. In such cases, an employer-employee relationship would exist under the FLSA.
The Handbook also states that "persons such as nuns, monks, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligations in the schools, hospitals, and other institutions operated by their church or religious order shall not be considered to be ‘employees.’" However, the Handbook also states that the fact that such a person is a member of a religious order does not automatically preclude an employer-employee relationship. This rule is rather ambiguous, and an employer should consider consulting an attorney to determine whether an employer-employee relationship exists in this situation.
State and local government employers, defined as public agencies by the FLSA, are covered by the Act. "Public agencies" are the federal government, the government of a state or political subdivision of a state, any state or federal agency, or any interstate governmental agency. The public agency definition does not extend to private companies that are engaged in work activities normally performed by public employees.
Certain employees of a public agency who, solely at their own option, occasionally or sporadically work on a part-time basis for the same public agency in a capacity other than the one in which they are primarily employed may be exempt from the overtime requirements of the FLSA.
Police. Public law enforcement personnel are covered by the FLSA. Law enforcement personnel are employees who are empowered by state or local ordinance to enforce laws designed to maintain peace and order, protect life and property, and to prevent and detect crimes; who have the power to arrest; and who have undergone training in law enforcement.
Firefighters. Public firefighters are covered by the FLSA. Fire protection personnel employed by a fire department include firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, or hazardous materials workers who are:
• Trained in fire suppression,
• Have the legal authority and responsibility to engage in fire suppression, and
• Are engaged in the prevention, control and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk.
The FLSA provides that employees engaged in fire protection or law enforcement may be paid overtime on a work period basis. A "work period" may be from 7 to 28 consecutive days. For example, fire protection personnel are due overtime under such a plan after 212 hours worked during a 28-day period, while law enforcement personnel must receive overtime after 171 hours worked during a 28-day period. For work periods of at least 7 but fewer than 28 days, overtime pay is required when the number of hours worked exceeds the number of hours that bears the same relationship to 212 (fire) or 171 (police) as the number of days in the work period compares to 28.
Exception. The FLSA provides an overtime exemption to law enforcement or fire protection employees of a public agency that employs fewer than five employees in law enforcement or fire protection activities.
Under the FLSA, an employer must pay minimum wage and overtime, but the Supreme Court has made it clear that the FLSA was not intended to stamp out volunteering. The FLSA recognizes the generosity and public benefits of volunteering and allows individuals to freely volunteer time to religious, charitable, civic, humanitarian, or similar nonprofit organizations as a public service. Volunteers will ordinarily not be considered employees for FLSA purposes if the individuals volunteer for organizations without contemplation or receipt of compensation. Additionally, the volunteer services must be given freely without coercion or undue pressure.
Due to the possibility of coercion to perform unpaid services, paid employees may not volunteer to perform the same type of services for their employer that they are normally employed to perform. Time spent in work for public or charitable purposes at the employer’s request, under the employer's direction or control, or while the employee is required to be on premises is working time. However, time spent voluntarily in such activities outside of the employee’s normal working hours is not hours worked, as long as the volunteer activities are not the same or similar to the activities the employee is employed to perform. Therefore, the employer must compensate employees for the hours spent volunteering during their normal working hours or when the volunteer work performed is similar to their regular duties. As for those employees who perform duties that are not similar to their regular duties and that are voluntarily performed after their normal working hours, those volunteer activities are not considered hours worked for the purpose of the FLSA.
A workweek is a period of 168 hours during 7 consecutive 24-hour periods. A workweek may begin on any day of the week and at any hour of the day established by the employer. Generally, for purposes of computing minimum wage and overtime, each workweek stands alone, regardless of whether employees are paid on a weekly, biweekly, monthly, or semimonthly basis. Two or more workweeks cannot be averaged.
An employer must generally pay an exempt employee the full salary for any workweek in which the employee performs any work without regard to the number of days or hours worked. An exempt employee's salary may be reduced when the employee is absent from work for a day or more for personal reasons, when an employee is absent a day or more because of sickness or disability if the deduction is made under a bona fide sick pay or disability pay plan, for absence due to an unpaid disciplinary suspension for violation of workplace conduct rules, for any time interval in which an employee is on leave under the federal Family and Medical Leave Act (FMLA), and for absence due to an unpaid disciplinary suspension for violation of a major safety rule. Please see the national Salaried Employee section.
“Hours worked” includes all time an employee must be on duty, on the employer's premises, or at any other prescribed place of work, as well as any additional time the employee is permitted to work.
The current federal minimum wage is $7.25 per hour. The FLSA does not supersede any state or local laws that are more favorable to employees. Therefore, if a state has a minimum wage that is higher than the federal minimum, employers subject to the state minimum wage law are obligated to pay the higher rate to employees working in that state.
Please see the state Minimum Wage section.
An employer may pay four groups of employees below the minimum wage: people with mental or physical disabilities, full-time students, certain employees under age 20, and certain employees who receive tips.
Covered employers must post notices outlining the federal minimum wage requirements. The notices must be posted conspicuously and in enough places so employees can see them as they enter and exit the workplace. Posters are available from the U.S. DOL, Wage and Hour Division, and may be downloaded from its website at http://www.dol.gov.
Opportunity wage. New hires under the age of 20 may be paid an “opportunity wage” of $4.25 per hour during the first 90 calendar days of employment. Employers may not displace any current employee in order to hire a worker at the opportunity wage.
Students. Full-time students may be employed at 85 percent of the minimum rate by retail stores and some service establishments upon obtaining a certificate from the federal wage and hour administrator.
Tipped employees. An employer may apply an employee's tips as a credit toward the minimum hourly wage, up to $5.12 per hour (i.e., the employer must pay at least $2.13 per hour in direct wages). This applies only to employees who customarily earn more than $30 per month in tips and who actually receive tips equal to or greater than the amount of the credit. Many states have stricter rules for tip credits. When the minimum wage rate increases, the tip credit will increase by the difference between $2.13 and the new minimum wage amount.
Please see the state Minimum Wage section.
FLSA regulations require employers to inform an employee before implementing a tip credit. Unless an employer gives proper notice, the employer will not be eligible to use a tip credit. According to the final rule, the notice has to include the following explanation:
• The amount of the cash wage the employer pays the employee, which cannot be less than $2.13 per hour;
• The additional amount the employer is using as a credit against tips received, which cannot exceed the difference between the minimum wage ($7.25) and the actual cash wage paid by the employer to the employee;
• That the additional amount claimed by the employer on account of tips as the tip credit may not exceed the value of the tips actually received by the employee;
• That the tip credit cannot be applied to any tipped employee unless the employee has been informed of the tip credit provisions of the FLSA; and
• That all tips received by the tipped employee must be retained by the employee, except for valid pooling of tips.
Employers must also notify employees of any required tip pool contribution amount.
The FLSA requires that overtime must be paid at a rate of 11/2 times a covered (nonexempt) employee's regular rate of pay for each hour worked in excess of 40 hours in a workweek (or the maximum allowable in a given type of employment). The FLSA does not require that overtime be paid for hours worked in excess of 8 hours per day or on weekends or holidays. (Some states require overtime to be computed on a daily hour basis.
Please see the state Overtime section.
Only hours worked count in the overtime calculation. Therefore, holidays not worked, vacation days, sick days, etc., are not counted. The fact that an employee receives holiday pay, vacation pay, or sick pay is of no consequence for overtime purposes. The test is hours worked rather than hours paid.
Although overtime must be computed weekly, the FLSA does not require that it be paid on a weekly basis; it only requires that overtime be paid in the next regular pay period following the period in which the overtime is earned.
An employer may require an exempt employee to work more than 40 hours in a workweek without having to pay a premium for overtime hours.
Please see the national Overtime section.
Please see the state Overtime section.
The FLSA does not apply to any employee whose services during the workweek are performed in a workplace within a foreign country (9 U.S.C. Sec. 213(f)). Therefore, the FLSA would not apply to a U.S. citizen (or non-U.S. citizen) working in China for an American company.
Covered employers must post notices outlining the federal minimum wage and overtime regulations. The notices must be posted conspicuously and in enough places so that employees can see them as they enter and exit the workplace. Posters are available from DOL Wage and Hour Division.
To obtain additional information from the Wage and Hour Division, including how to contact a regional or district office of the Wage and Hour Division, contact:
U.S. Department of Labor Wage and Hour Division
200 Constitution Avenue, NW
Washington, DC 20210
202-693-0051
Last updated on November 23, 2016.
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