Payroll Articles
Fair Labor Standards Act
Perhaps the most basic of all payroll and employment laws is the Fair Labor Standards Act of 1938 (FLSA), also known as the Federal Wage-Hour Law. The FLSA does the following:
- Sets the minimum wage and overtime rates Employees must receive for their work;
- Requires record keeping by employers;
- Places restrictions on the types of work children can do and the hours they can work; and
- Mandates equal pay for equal work.
Almost as important is what the FLSA does not do. The FLSA does not:
- Require employers to provide paid vacations, sick days, jury duty leave, holidays, lunch breaks, or coffee breaks;
- Regulate how often Employees must be paid, or when they must be paid after termination of employment (either voluntarily or involuntarily); or
- Restrict the hours that Employees over 16 years of age may be required to work.
Another federal law or regulation may govern these areas, but in most instances they are handled by the individual states.
While the FLSA does not require that wages be paid within a certain amount of time after services are performed, federal courts have ruled that wages are unpaid, unless they are paid on the Employee's regular payday. Payment beyond that date violates the FLSA's minimum wage and overtime pay requirements, the courts said, although overtime pay may lawfully be delayed until it can be correctly calculated. On a related issue, a federal appeals court said that delaying payday by one day for each of 5 weeks while changing from a weekly current to a biweekly lagged pay schedule does not violate the FLSA's minimum wage and overtime provisions and may not violate the prompt payment requirement if the change is intended to be permanent, does not unreasonably delay payment, and is made for a legitimate business purpose.
DOL Enforcement. The Federal Wage-Hour Law (except for the equal pay provisions) is administered and enforced by the Wage and Hour Division of the U.S. Department of Labor's Employment Standards Administration. The equal pay provisions are enforced by the Equal Employment Opportunity Commission.
All employers and payroll practitioners must be aware not only of the FLSA, but of the state wage-hour
laws in states where they operate. There are two reasons for this:
- Areas left unregulated by the FLSA are most likely regulated by all states to one degree or another.
- Even where the FLSA has an applicable provision, the employer must comply with a state law covering the same issue if the state law is more favorable to the Employee. (However, there are several states that exempt employers and Employees covered by the FLSA from state law coverage.)
There are two types of coverage under the FLSA
Enterprise coverage. Under the enterprise coverage test, all the Employees of a business are covered and protected by the FLSA if:
- At least two Employees of the business are employed in jobs closely related and directly essential to interstate commerce or the production of goods for interstate commerce (including Employees who handle, sell, or otherwise work on goods or materials that have been moved in or produced for interstate commerce), and
- The business has annual gross sales of at least $500,000. Certain businesses (and all their Employees) are specifically covered by the FLSA regardless of annual sales volume. They include:
- Hospitals
- Nursing homes
- Elementary and secondary schools and colleges (whether public or private)
- Public (government) agencies
Individual Employee coverage. Under the individual Employee coverage test, an Employee is covered by the FLSA if he or she is engaged in interstate commerce or in the production of goods for interstate commerce. It does not matter if the business is not a covered enterprise, so long as the Employee's job is in interstate commerce.
Interstate Commerce Defined. Basically, interstate commerce is any trade, transportation, or communication between one state and another state (or states) or between a state and a foreign country. Both of these tests for FLSA coverage, as well as the definition of interstate commerce, have been interpreted very broadly by the Wage and Hour Division and the courts, so that nearly all businesses are covered by the FLSA unless a specific exemption applies. One of the few remaining exemptions from the FLSA is for Family owned small businesses , where the only Employees are the owner and immediate family members. Those employers that are not covered by the FLSA (e.g., their annual sales volume may be less than $500,000) may still be subject to state wage-hour requirements, which may be more generous to Employees.