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  5. FLSA Compliance

FLSA Compliance

Adherence to Fair Labor Standards Act requirements for minimum wage, overtime pay, and recordkeeping.

PayrollGlobal Payroll

FAQs

What is the difference between exempt and non-exempt employees under FLSA?

Non-exempt employees are entitled to minimum wage and overtime (1.5× regular rate for hours over 40 per week). Exempt employees are excluded from these protections and typically work without fixed hours or overtime pay. To qualify as exempt, an employee must meet both a salary test (paid at least $684/week on a salary basis) and a duties test (primarily performs executive, administrative, or professional duties). Job titles don't determine exemption status—actual job duties do. Many employers incorrectly classify employees as exempt based solely on salary level or job title, creating FLSA liability for unpaid overtime going back 2–3 years.

What is the 'regular rate of pay' for overtime purposes?

The FLSA overtime rate of 1.5× must be applied to the 'regular rate of pay'—not just the base hourly rate, but a calculated rate incorporating most additional compensation. The regular rate includes: hourly wages, non-discretionary bonuses (production bonuses, attendance bonuses, shift differentials), commissions, and most other forms of compensation paid for working. It excludes: discretionary bonuses (determined solely by employer, not pursuant to contract), overtime premiums already paid, vacation/sick pay, and certain other benefits. Employers who pay production bonuses to non-exempt employees must recalculate the regular rate to include the bonus allocation and pay any overtime premium deficiency—a commonly overlooked FLSA obligation.

Are independent contractors exempt from FLSA?

Yes—independent contractors are not covered by FLSA because they are not 'employees' as defined by the Act. However, the legal classification of workers as independent contractors versus employees is determined by the economic reality test (whether the worker is economically dependent on the employer), not by contractual labels or 1099 filing. Employers who misclassify employees as independent contractors to avoid FLSA obligations face significant liability: back wages for 2–3 years, liquidated (double) damages, payroll tax liability, and penalties. The DOL and IRS have increased enforcement of worker misclassification, and multiple states have enacted stricter AB5-style classification tests (California's ABC test) that make contractor status harder to maintain.

Related Terms

FMLA

Federal law providing eligible employees up to 12 weeks of unpaid, job-protected leave annually for qualifying family and medical reasons.

ADA Compliance

Adherence to the Americans with Disabilities Act prohibiting discrimination and requiring reasonable accommodations.

Self-Employment Tax

Social Security and Medicare taxes paid by self-employed individuals on net self-employment income.

Workers' Compensation

State-mandated insurance providing medical and wage benefits to employees injured or ill due to work.

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FLSA compliance refers to adherence to the Fair Labor Standards Act of 1938, the federal law establishing minimum wage, overtime pay, child labor, and recordkeeping requirements for most U.S. private sector and government employers. FLSA is enforced by the Wage and Hour Division of the Department of Labor and through private employee lawsuits, which can result in double back wages plus attorneys' fees for willful violations.

Core FLSA requirements: federal minimum wage ($7.25/hour as of 2024, though most states and localities have higher minimums); overtime pay of 1.5× the regular rate for all hours worked over 40 per workweek for non-exempt employees; child labor restrictions on hours and types of work for minors; and employer recordkeeping requirements (wages, hours, and other conditions of employment for at least 2–3 years).

Exempt versus non-exempt classification is the most complex FLSA compliance area. Employees classified as exempt from overtime requirements must: be paid on a salary basis of at least $684/week ($35,568/year as of 2024), and primarily perform duties qualifying under the executive, administrative, or professional exemptions (the 'white collar exemptions'). Highly compensated employees (HCE exemption) have a lower duties test but must earn $107,432+/year.

Common FLSA violations: misclassification of employees as exempt when they don't meet all exemption tests; paying employees 'straight time' for overtime (not 1.5×); failing to count all compensable work time (pre/post-shift work, on-call time, training, travel); off-the-clock work; improper tip credit calculations; and failure to pay for all meal and rest break requirements (where state law applies).

Flexible scheduling and remote work have created new FLSA compliance challenges: employers must track all compensable time for non-exempt remote workers, including time spent on work-related activities outside scheduled hours.