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Complying with U.S. Wage and Hour Laws and Wage Payment Laws


Overview

This toolkit discusses federal and state laws governing the payment of wages and hours worked. Specifically, it addresses the scope of and compliance requirements under the federal Fair Labor Standards Act (FLSA) with regard to minimum wage, overtime pay and overtime eligibility laws, including the exemptions from FLSA coverage.

Compliance with the scheme of federal and state laws, regulations, and, in some jurisdictions, municipal laws regulating the payment of wages and overtime pay can be daunting. Following is a discussion of some of the differences between federal and state laws, the legal issues that arise, and the compliance challenges for employers. It includes suggestions for assisting human resource professionals to develop the policies and practices necessary for effective administration and compliance with the applicable laws and regulations. It also covers state laws concerning wages and hours and wage payments.

Background

The FLSA is a signature accomplishment of the labor movement during the administration of President Franklin D. Roosevelt. Today, it is supplemented by numerous U.S. Department of Labor (DOL) regulations administered by the DOL Wage and Hour Division (WHD). See Compliance Assistance - Fair Labor Standards Act and Wage and Hour Division History.

The FLSA was a sweeping piece of federal legislation that covered all employers with two or more employees, so long as the employers were within the reach of Article I, Section 8 of the U.S. Constitution, known as the Commerce Clause. The Commerce Clause states, in a pertinent part: "The Congress shall have power to . . . regulate commerce with foreign nations, and among the several states, and with the Indian tribes."

As broad as the FLSA was when originally enacted, it left untouched the working conditions of many U.S. workers who were not engaged in interstate commerce. Once the limits of the federal legislation became clearer through numerous court cases, the states began enacting their own laws concerning minimum wages, overtime and other areas not covered by the federal legislation. Today, almost all employers engage in interstate commerce due to the ease of conducting business in other states via telephone, mail and the Internet. Simply ordering office supplies from an out of state vendor or sending an employee to a job-related training seminar in a neighboring state is considered interstate commerce.

Business Case

There is always a good business case for the proposition that employers should obey the law. The various wage payment statutes impose significant disincentives upon employers that ignore or flout the law—civil damages, recovery of attorney fees and other litigation expenses, monetary penalties, and enforcement proceedings funded by the federal or state government. Executives who devise or implement strategies to circumvent the law may be subject to individual liability—judgments that can be collected under certain circumstances from their personal bank accounts or liens on their homes and personal assets. Insurance does not usually cover such liabilities and may result in yet another dispute—with the insurance company over coverage. See Individual Liability Is More Common Than Many Realize.

The Fair Labor Standards Act

As noted above, the FLSA is a very complex piece of legislation that is complemented by a complex set of federal regulations. The FLSA generally establishes minimum wages for hours worked, including in certain circumstances the requirement to pay overtime pay for time worked in excess of 40 hours in a single workweek. These seemingly simple concepts can become quite complex in the context of modern compensation planning and design and workplace practices that do not fit neatly within the paradigm of the 1930s. Today, the questions of whether an employee meets the requirements for overtime eligibility and, if so, how overtime pay should be calculated present significant challenges for HR professionals. Answering these questions may include considerations of differential pay, incentive pay plans, commission-based pay and severance pay plans. All of these issues may be encompassed within the job description of payroll administration at a small organization, but may merit an upper-management position or outside consultancy in a large organization. See Don't Make These 4 Wage and Hour Mistakes.

Necessity of employer-employee relationship

An employer-employee relationship is required under the FLSA. For example, certain trainees, interns, externs, apprentices and graduate assistants may not be considered employees within the meaning of the FLSA.

See:

Fair Labor Standards Act Advisor: Am I an Employee?

Employing Interns

Worker Misclassification Is in Agencies' Crosshairs

However, it is the nature of the relationship that determines whether it is truly an employment relationship or independent contractor relationship. Employers cannot escape the regulation of federal and state wage and hour laws by simply designating workers as independent contractors. See Employing Independent Contractors and Other Gig Workers.

Minimum wage

The applicable minimum wage depends on the nature of the job and the jobholder. For example, there are different minimum wages for workers with disabilities, full-time students, youth under age 20 in their first 90 consecutive calendar days of employment, tipped employees and student learners. Many states have established minimum wages at higher levels than the federal minimum wage. See Minimum Wage Overview and DOL Finalizes $15 Minimum Wage Rule for Federal Contractors.

Overtime pay

The FLSA generally requires that nonexempt employees receive pay at one-and-one-half times their regular rate for all hours worked in excess of 40 hours per workweek. This legal requirement is loaded with qualifications lodged within the definitions of the terms used. Even experienced HR professionals have difficulty applying these complex rules to specific situations. See Overtime Pay Requirements of the FLSA and Calculating Overtime Pay in the United States.

Some states have overtime pay requirements that are more generous than the FLSA. See Which states have daily overtime pay laws? and State Minimum Wage Laws (premium pay requirements).

Record-keeping

Employers must be able to prove they are in compliance with applicable wage and hour laws by keeping detailed payroll records. Given the ease of maintaining records digitally at low cost, employers are advised to keep payroll records well beyond the dates required by the FLSA or state laws. See Recordkeeping Requirements under the Fair Labor Standards Act (FLSA) and Employer's Failure to Produce Records Justified 'Slight Windfall' for Worker.

Exemptions Under the FLSA

[Editor's Note: On Sept. 8, 2023, the Department of Labor (DOL) issued a proposed rule increasing the Fair Labor Standards Act's (FLSA's) annual salary-level threshold to $55,068 from $35,568 for white-collar exemptions to overtime requirements. The department also is proposing automatic increases every three years to the overtime threshold. A public comment period will be open until Nov. 7, 2023.]

The FLSA operates by initially stating all the requirements for employers and then by enumerating broad exceptions to those requirements. Historically, such exemptions have been described as applying to white-collar employees, who are exempt from the FLSA's minimum wage and overtime requirements. On the other hand, the term "blue-collar employees" is used for those who are nonexempt, being the primary beneficiaries of the FLSA's guarantee of minimum standards for working conditions. These descriptors have continued to be used in even the most recent legislation and rulemaking, even though such clothing-based descriptions may seem strange or even politically incorrect by modern standards. See Understanding Overtime Exemptions Under the FLSA.

The "Big Five" FLSA exemptions

The FLSA provides for exemptions from overtime pay for five white-collar employee categories:

  • Executive.
  • Administrative.
  • Professional.
  • Computer-related professional.
  • Outside sales.

See Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA).

When states legislate in this area, they typically follow the same exemptions as the FLSA.

The greatest impact of these exemptions is the elimination of the need for employers to pay overtime wages for hours worked in excess of 40 per week. Some of the exemptions depend on wages being paid on a salary basis, which must satisfy the FLSA's salary level test. Employees paid on a salary basis that meets or exceeds the salary level nonetheless may be entitled to overtime pay if their specific duties do not fall within the requirements for the executive, administrative and outside sales exemptions. The professional exemption depends on the nature of the education of the employee or the degree to which the employee functions as a professional, an artist or a teacher. Similarly, the computer-related exemption depends upon the nature of the employee's computer-related duties. See FLSA Overtime Security Advisor and FLSA Overtime Rule Resources.

Compensation in the form of a salary is not sufficient, in and of itself, to make the job exempt from the FLSA requirements. The application of the FLSA exemptions to certain job categories has been a hotly contested issue and the subject of hundreds of lawsuits, including ones on behalf of whole classes of employees. In those cases, the outcome has the potential to affect entire job categories, employer liability for violations is compounded by the size of the class, and violators will be assessed back pay with interest, penalties of liquidated damages in some cases, and attorney fees.

Other minimum wage and overtime exemptions under the FLSA

In addition to the white-collar exemptions, there are numerous other industry-based exemptions, some of which apply to minimum wage, to overtime or to both.

Employees exempt from the overtime provisions of the FLSA based on industry include:

  • Commissioned retail employees.
  • Agricultural employees.
  • Trip-rate drivers and driver's helpers.
  • Live-in domestic employees.
  • Petroleum products distributors.
  • Rail and air carrier employees.
  • Small radio and television station employees.
  • Dealership employees.
  • Taxi company employees.
  • Motion picture theater employees.
  • Saw mill employees.
  • Employees in concessions to national parks.

Employees exempt from the minimum wage provisions of the FLSA based on industry include:

  • Amusement or recreational establishment employees.
  • Seafood processing employees.
  • Employees of small newspapers.
  • Seamen.
  • Casual babysitters and companions.
  • Wreath makers.
  • Child actors.

See Fair Labor Standards Act Exemptions.

The burden of proving entitlement to an exemption to the FLSA always rests on the employer. Proper classification of employees requires at least an informal job analysis, although a formal job analysis can be a useful tool for an employer establishing its right to a claimed exemption. Reliance on job descriptions alone is not advisable, as the actual tasks performed often differ from the written description. Job analysis involves the systematic study of jobs to determine what activities and responsibilities they include, their relative importance in comparison with other jobs, the personal qualifications necessary for performance of the jobs, and the conditions under which the work is performed. Job analysis focuses on the job, not the person doing the job (even though some job analysis data may be collected from incumbents).

Employers that want to claim any of the above exemptions must be careful to make sure that they qualify in every respect. Usually, this requires consultation with legal counsel or a consultant with a highly specialized degree of knowledge.

FLSA Enforcement                   

The U.S. DOL has stepped up enforcement of the FLSA, primarily through industry-specific actions against large employers and class actions. Private parties are using the leverage of collective and multiple plaintiff actions under the FLSA. Often, these cases turn on longstanding ambiguities in federal and state law as to the requirements of the wage and hours laws. Even apart from such monumental legal actions, employers of all sizes continue to struggle with compliance issues under the FLSA and state counterparts.

See:

WHD Fact Sheet #44: Visits to Employers

Employers Should Be Prepared for a DOL Wage and Hour Audit

Top 10 Wage and Hour Class Actions Cost Nearly $500M

State Law Coverage

Today, almost every state has its own wage and hour law, which may or may not prescribe a different hourly wage than what is prescribed by the FLSA, and which may or may not follow the exemptions afforded by the FLSA. State laws typically are more generous to employees in terms of the minimum wage, the scope of exemptions and the definitions of operative terms such as "overtime." Many states require overtime pay in situations more favorable to employees than under the FLSA. In seeking to comply with the law, employers should always consult both federal and state laws concerning wages and hours. See Minimum Wage Laws in the States.

When states regulate wages and hours, they usually do so in the following areas and ways:

  • Higher minimum wage.
  • Broader definition of "overtime" more favorable to the employee.
  • Specific requirements for the method and time of payment.
  • Different remedies for violations.

States are particularly active in regulating minimum wages because the cost of living varies greatly from one state to another. States are less active, though, in regulating overtime because the burden of working long hours in one state is much the same as working long hours in another state.

Another area that states commonly regulate is the timing of the payment of wages and payment of wages upon termination of employment. State laws often require payment of wages within a certain time frame, and payment of earned wages are often due immediately upon involuntary termination of employment.

Prevailing and Living Wages

While most employers are required to pay only the federal or state minimum wage, employers with certain federal or state contracts, subsidies, grants or loans, or those of a certain size or in a certain locality may be required to pay a prevailing or living wage, whichever is higher. Prevailing wages apply to employers with federal contracts subject to the Davis-Bacon Act, the Walsh-Healey Public Contracts Act (PCA) or the McNamara-O'Hara Service Contract Act (SCA) and to some state government contracts. Prevailing wages typically exceed the federal or state minimum wage rates.

Living wage ordinances are initiatives that aim to strengthen the local economy and protect local workers by setting minimum wages that meet or exceed the poverty level. They apply to employers with certain local and state government contracts or subsidies, some state grants and loans, and, in rare cases, to all employers in a particular locality of a certain size. Some states index against the federal poverty guidelines to compensate for a higher cost of living in some areas, with most states setting living wages between $11 and $15 per hour. Some states require a higher rate if employers do not offer benefits. 

Wage Garnishments

The federal Consumer Credit Protection Act (CCPA) limits the amount of an employee's earnings that organizations may garnish in any one week and prohibits employers from terminating an employee due to a single garnishment order. The DOL's Wage and Hour Division administers the CCPA. See The Federal Wage Garnishment Law

Determining the disposable income subject to garnishment, establishing priorities for multiple garnishments and factoring in state laws that may differ from the CCPA are just a few of the concerns employers face when complying with wage garnishment orders. The consequences for ignoring a garnishment can be extreme. In the majority of states, an employer can be liable for up to the full amount of the employee's outstanding debt.

Communications

At a minimum, employers are required to post notices of the wage/hour rights afforded by federal or state law. These are usually posted in an employee break room or other place readily accessible to employees. Official posters are available from the federal and state government and from private providers. Large employers should have multiple postings—for example, on every floor of a multifloor building. HR professionals should periodically inspect the postings to make sure that they are still there and have not been defaced. See U.S. Department of Labor, Wage and Hour Division (WHD): Workplace Posters.

Ensuring supervisors and managers are aware of wage and hour laws is vital for compliance. SHRM has sample training presentations on the FLSA that may be helpful in educating managers and supervisors in understanding the federal wage and hour law requirements.

See:
Fair Labor Standards Act Training, Parts 1-3: Overview, Child Labor, Equal Pay

Fair Labor Standards Act Training, Part 4: Exempt Employees

Fair Labor Standards Act, Part 5: Nonexempt Employees

Technology

In terms of complying with wage and hour laws, organizations may apply technology in several ways:

  • Use of the Internet to stay abreast of new developments in the law.
  • Use of software to develop written job descriptions and employee handbooks.
  • Use of the Internet to acquire the text for mandatory posters and notices.
  • Use of human resource information system (HRIS) software to document wage and hour classifications and changes.
  • Electronic storage of records and reports.

For additional uses of technology for wage and hour purposes, see 5 Ways to Leverage Technology for Overtime Compliance.

Additional Resources

Tools and Samples

Understanding Overtime Exemptions Under the FLSA

Calculating Overtime Pay in the United States

What You Need to Know About White-Collar Overtime Exemptions Under the FLSA

What You Need to Know About Overtime Pay

When can deductions be made from exempt employees' salary?

What is the meaning of "salaried, nonexempt" employee?

Are there exceptions to the minimum salary requirements for white-collar exemptions under the FLSA regulations?

Employee Classification Policy: Employment Categories

Overtime Policy

Exempt Employee Pay Deductions Policy

Timekeeping Policy

U.S. Department of Labor Resources

U.S. Department of Labor, Wage and Hour Division

U.S. Department of Labor, Wage and Hour Division (WHD): Frequently Asked Questions

U.S. Department of Labor, Wage and Hour Division (WHD): Industry-Specific Resources

U.S. Department of Labor, Wage and Hour Division (WHD) Related elaws Advisors.