In 1938, in response to pressure from organized labor, Congress enacted the Fair Labor Standards Act (FLSA). The Act established minimum wage, overtime pay, recordkeeping and child labor standards for workers. The Act is administered by the United States Department of Labor, Employment Standards Administration - Wage Hour Division. A convenient source for readily accessible information on the FLSA is the government publication called "A Handy Reference Guide to the Fair Labor Standards Act."

Covered employees and enterprises. A covered enterprise, for purposes of the Fair Labor Standards Act (FLSA), is a business which engages in interstate commerce, produces goods for interstate commerce, or handles goods and materials which have been produced for commerce by a person covered by the Fair Labor Standards Act. Given this broad definition, most employees will be covered under the FLSA.

Tipped employees. Employers can be given credit for minimum wage payments where they have "tipped" employees who regularly receive more than $30 per month in tips. The wage credit which the employer claims, however, must not exceed 50% of the minimum wage which is currently set at $7.25 per hour under federal law.

Employees who are classified as "tipped" employees must be entitled to retain all of their tips except to the extent the employer has a valid tip pooling or sharing arrangement. In addition, the employer who seeks to claim the tip credit is required to inform the employee in advance and be prepared to illustrate that the employee does, in fact, receive at least minimum wages when direct wages and the tip credit allowance are combined.

Home work employees. For many years, the Department of Labor has prohibited certain types of work in an employee's home unless the employer obtained prior certification from the Department of Labor for permission for the employee to engage in the home work.

The Fair Labor Standards Act requires employers to track employee's working time, regardless of where the work is performed. It may be difficult to monitor the time spent by workers at home, but the employer has the obligation to do so in order to insure that minimum wage and overtime compensation is appropriately paid under the statute.

An employer who retains employees who work at home should establish a sound record-keeping system. The record-keeping system should effectively track when the employee is working either through a self-reporting system or an electronic monitoring system. At a minimum, a self-reporting system should require the employee to certify the number of hours worked each week. For employees who perform tasks through computers, electronic systems are available to monitor their work activity, provided the only work time actually spent is, in fact, involving hands on computer work.

Sub-minimum and training wages. The FLSA provides for some wage rates below the statutory minimum. Under specified conditions, some employers may pay a training wage of at least 85% of the applicable minimum wage, or $4.25 per hour, whichever is greater, for up to 90 days. Further, an employee who has been paid at a training wage for 90 days may be employed at a training wage for an additional 90 days provided the employee is employed by a different employer in accordance with the DOL rules. There are nondiscrimination provisions in the law which prohibit an employer from laying off or reducing the wages of employees in order to hire other individuals at a training rate. Again, an employer is admonished to check with the Department of Labor and qualified counsel concerning limitations on sub-minimum and training wages.

Exemptions from minimum and overtime wage rates. The FLSA does contain a limited number of exemptions from minimum and overtime wage rates for certain classes of employees. The exempt classifications are those which permit both minimum wage and overtime pay exemptions, exempt an employee from overtime pay only, and those which create only partial exemptions from overtime pay. Consultation with a qualified legal representative or contact with the Department of Labor can assist an employer in identifying the availability of exemptions for particular classes of employees. The exemptions defined below are those which exempt the employee from both minimum wage and overtime pay protections and are those which receive the greatest amount of scrutiny by the Department of Labor:

1. Executive or managerial employees - Requirements for exemption
   1. Primary duty must be management or the enterprise or department or subdivision; and
   2. Must customarily and regularly direct the work of two or more subordinates (normally 80 hours of work by such individuals); and
   3. Must have the authority to hire or fire or recommend hiring or firing, advancement, promotions, or any other changes of status of other employees are given particular weight; and
   4. Must be paid a guaranteed salary of at least $455 per week.
      
      
2. Administrative employee exemption - Requirements for exemption
   1. Primary duty (50% or more of his/her time) devoted to performing office or non-manual work related to management policies or general business operations of employer or employer's customers; and
   2. Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance; and
   3. Must be paid a guaranteed salary of at least $455 per week.
      
      
3. Professional employee exemption - Requirements for exemption
   1. Primary duty (consisting of 50% or more of his/her time) must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor; or teaches, tutors, instructs imparting knowledge and is employed as a teacher certified or recognized by a school system or educational establishment for which he/she is employed; and
   2. Earns a salary of $455 or more per week or a fee basis of $455 per week or more. (exceptions for doctor, lawyer, teacher.)
      
      
4. Computer related occupational exemption.
   1. Primary duty must consist of one or more of the following:
      1. Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or
      2. The design, development, documentation, analysis, creation, testing, modification of computer systems or programs, including prototypes, based upon user or system design specifications of computer systems based upon, and related to, user specifications; or
      3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
      4. Combination of the aforementioned duties, the performance of which requires the same level of skills.
   2. Paid on a salary basis of at least $455 per week or an hourly rate of pay in excess of 6 1/2 times the minimum wage - currently $27.63 per hour.
   
   Note: workers paid on an hourly basis, not a salary basis, whose rate of pay is equal to or less than 6 1/2 times the minimum wage, are ineligible for the exemption.
5. Outside sales representative exemption.
   1. Detailed FLSA regulations define the requirements for this exemption. At the very least, the exempt employee must be an outside sales person who is regularly away from the employer's place of business, making sales or obtaining orders for contracts or services.
   2. Under the FLSA regulations, an employee cannot be considered as exempt unless he/she is paid on a salary basis. Recognizing that more people are working at home or working on a part-time basis, even if they are highly skilled, degreed professionals, an hourly rate payment will still classify these individuals as non-exempt, even if they are paid at an exceptionally high rate of pay per hour. An employee must earn a salary of at least $455 per week. An employee cannot earn an hourly wage unless the number of hours per week are guaranteed, in which case it is considered the equivalent of a salary. It is not necessary that the individual be employed on a full-time basis, just that the person earns a salary of at least $455 per week.
   
   Note: To read more about the Exemptions From Minimum Wage and Overtime Rules Effective Aug 23, 2004, proceed to Chapter 23a.

Hours worked/critical concepts. A work week is defined under the Fair Labor Standards Act as a period of 168 hours during 7 consecutive 24-hour periods. It may begin on any day of the week as established by the employer. As a general rule, in calculating minimum wage and overtime payments, each work week is isolated. The law does not permit the averaging of two or more work weeks together to minimize overtime or minimum wage obligations.

Covered employees must receive compensation for all hours worked in a work week. Hours worked must include any time the employee is actually on duty, whether on the employer's premises or at another prescribed place of work during time that the employee is "suffered or permitted" to work. An employee is deemed to be "suffered or permitted" to work when some effort is exerted on behalf of the employer and the employer accepts the benefit of the employee's efforts.

Overtime compensation. The overtime rate under the Fair Labor Standards Act is 1 1/2 times the employee's regular rate of pay for each hour worked in excess of 40 hours per week for most businesses. Employees may be paid by a "piece" rate provided total weekly earnings divided by total number of hours equal a rate in excess of the minimum wage and the employee receives time and one-half his/her weekly average as an overtime rate. In addition, for employees paid by a salary, the applicable hourly rate can be obtained by dividing the number of hours into the salary to calculate an hourly rate. The overtime compensation rate can be obtained by multiplying the applicable hourly rate by 1.5.

Compensatory time off. Under most circumstances, employers should be very careful about promising compensatory time off in return for avoiding paying overtime compensation. Most employers do not understand that any compensatory time off to offset accrued overtime must be given in the same 40 hour work week in which the overtime work was performed. Technically, an employer must pay time and one-half for all hours worked over 40 in a work week. As such, an employer may not wait until months later to provide the employee with compensatory time off to offset overtime worked months earlier. However, as an example, if an employee works 5 hours overtime on a Tuesday and the employer gives the employee 5 hours of compensatory time off on a Friday (assuming both days are part of the same 40 hour work week), compensatory time off is permissible.

Child labor. The FLSA also contains provisions designed to prohibit the employment of children in jobs which may be detrimental to their well being or which may interfere with their educational opportunities. Indeed, the Secretary of Labor has issued regulations which limit the hours and type of work in which minors may participate. The restrictions on employment classify work as non-agricultural or agricultural positions. It is beyond the scope of this chapter to discuss in detail the work restriction which apply to minors between the ages of 12 and 18. Nonetheless, an employer who retains children should be conscious of the child labor restrictions under the FLSA and the necessity for employers to secure appropriate work permits for minors engaging in gainful employment.

Record-keeping requirements. Employers are required to maintain adequate permanent records concerning the wages earned and hours worked by their employees. Records should not be made in pencil. The Department of Labor scrutinizes employer wage records carefully to insure that they comply with FLSA record-keeping requirements.

An employer is not required to keep a time clock, nor maintain time records in any particular form. Nonetheless, for non-exempt employees (employees subject to minimum wage and overtime pay requirements), the standards require that the following records be kept:

1. Information pertaining to the employee's name, work address, occupation, sex and birth date (if under 19 years of age);
2. Hour and day when each workweek begins;
3. Total hours worked each workday and each workweek;
4. Total daily and weekly straight time earnings;
5. Regular hourly pay rate for each week when overtime is worked;
6. Total overtime pay for the work week;
7. Deductions from, or additions to, wages;
8. Total wages paid each pay period; and
9. Date of payment and the pay period covered.

The regulations also require that records be maintained to identify exempt employees and employees working under unusual pay arrangements. Again, for further specific information concerning these requirements, an employer is well advised to consult with legal counsel and/or representatives of the Department of Labor.

To read more about the Exemptions From Minimum Wage and Overtime Rules Effective Aug 23, 2004, proceed to Chapter 23a.

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SOURCES

1. Adapted from the Handy Reference Guide to the Fair Labor Standards Act, WH Publication 1282, U.S. Department of Labor, Wage and Hour Division, 1992.
2. Title 29 CFR Part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; Final Rule, April 23, 2004. Effective on August 23, 2004.",