The Fair Labor Standards Act: What You Need to know
The Fair Labor Standards Act of 1938, or the FLSA, is America’s broadest piece of labor legislation. Commonly referred to as the Wage and Hour Law, the FLSA impacts organizations in a variety of ways. The law’s major provisions include the following:
• Tests to determine a position’s exemption status,
• Declaration of the federal minimum wage,
• Rates and requirements for overtime pay,
• Definition of workweek,
• Child labor provisions, and
• Recordkeeping requirements.
While the law’s provisions are all of interest to employers, one in particular generates the most discussion and, at times, confusion – determining a position’s exemption status. Employers want to ensure that they have appropriately classified their positions under the FLSA’s guidelines. The law considers exempt status an earned privilege. Positions misclassified as exempt leave the employer vulnerable to investigation by the Department of Labor. The organization also leaves themselves open to associated penalties, fines, and back pay awards as a result of misclassification. On the other hand, the Department of Labor is far less concerned with positions misclassified as non-exempt.
What do exempt and non-exempt statuses mean? The law excludes exempt positions from FLSA minimum wage and overtime pay requirements. Organizations pay incumbents in exempt positions on an equal salary basis each pay period, irrespective of how many hours the employees work. Typical exempt positions often include Chief Executive Officer (CEO), National Sales Manager, Pharmacy Director, and Database Developer. On the other hand, the FLSA’s minimum wage and overtime pay requirements apply to non-exempt positions. Under federal law, employers must compensate any hours over 40 that a non-exempt employee works at the rate of one and one-half times the employee’s regular rate of pay. Typical non-exempt positions often include Receptionist, Janitor, Certified Nursing Assistant (CNA), and PC Maintenance Technician.
How do organizations determine the exemption statuses for their positions? The FLSA provides guidelines, or exemption tests, to help organizations and / or their legal counsel, make the decisions. In 2004, the Department of Labor updated the law’s tests and regulations for determining exemption status. These updated tests reflect changes in America’s economy and ways of doing business since the law’s creation in 1938. In general, there are three primary criteria to classify a position as exempt:
• The position is paid a minimum salary greater than $455 per week,
• The position is paid on a salary basis without improper deductions, and
• The position performs exempt duties.
While outside the scope of this article, there are seven exemption tests which examine the nature of the duties of the position being analyzed:
• Executive exemption
• Administrative exemption
• Learned professional exemption
• Creative professional exemption
• Highly compensated employee exemption
• Computer employee exemption
• Outside sales exemption.
An exempt position must meet all the criteria of only one of these seven exemption tests. In general, exempt positions will typically
• Have full supervisory authority (e.g., hire, fire, review, and promote) for two or more employees,
• Require a minimum of a Bachelor’s degree or other level of advanced knowledge gained from a prolonged course of formal study,
• Utilize judgment and independent discretion in daily decision making processes, and
• Have a large impact on the organization or a major portion of the organization.
In our next article on the FLSA, we’ll explore the top six ways to find your organization in non-compliance with the law.