Fair Labor Standards Act: An Overview of the Basic Provisions and Recent Developments
by Sheila Gladstone, Sarah Glaser, and Emily Linn
The Fair Labor Standards Act (“FLSA”) is a federal employment law that establishes many of the workplace wage and hour standards employers should be familiar with, including minimum wage, overtime pay, record keeping requirements related to tracking hours worked, and child labor standards. There are also special rules that apply to public employers, including guidance on fire and police activities, volunteer work, and the offering of compensatory time instead of cash overtime payment.
The Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”) administers the FLSA and frequently issues regulations and other guidance for employers on how to comply with the wage and hour rules. Over the last year, there have been a number of updates from the DOL, which we will outline below. Notably, the most recent rules coming out of the DOL, including final rules clarifying the test for independent contractor classification, revisions to the tipped employee regulations and an updated rule on joint employer status have either been revised or rescinded by the new Biden Administration.
Before we discuss the current status of the new rules and other guidance, we first want to remind employers of the basic provisions of the FLSA.
Overview of the Fair Labor Standards Act
Federal Minimum Wage
The FLSA established a federal minimum wage, which is currently set at $7.25/hr. This is a floor, meaning that states and other local entities can adopt a higher minimum wage, though Texas has not. There is a separate minimum wage for tipped employees. Tipped employees must be paid at least $2.13/hr in direct wages; however, their total pay when taking into account a tip credit must still equal the $7.25/hr federal minimum.
Recently, there has been a legislative push to increase the minimum wage, including through the Raise the Wage Act of 2021 and in a House version of the American Rescue Plan Act. While the final version of the stimulus package did not include any increase, the Biden Administration and Democratic lawmakers have indicated they will continue to push for an increased minimum wage.
The FLSA requires that covered, non-exempt employees be paid overtime pay at time and a half, for hours worked over 40 hours in any seven-day work week (with some work period differences for police, fire, and hospital staff). Employers should define their seven-day work period in writing, preferably in an employment manual or other personnel policies. Employers should also clearly indicate whether an employee can flex their time within the work week, and for public sector employees, whether they will offer compensatory time, rather than cash overtime pay.
When classifying workers as either exempt or non-exempt from overtime requirements, an employer must first determine whether an employee is paid on a salaried, and not hourly basis, and meets the salary minimum to be considered exempt under the FLSA’s executive, administrative and professional exemptions, also known collectively as the “white collar exemptions.” For a discussion about the latest white collar exemption salary minimum, see below.
Employees earning more than the minimum salary must also meet a duties test in order to be classified as exempt.
- To qualify for the executive exemption, the person must manage the enterprise or a department within the enterprise, must regularly supervise 2+ employees, and have the authority to hire or fire other employees (or their recommendations as to hiring/firing are given particular weight).
- To qualify for the administrative exemption, the worker’s primary duty must be the performance of non-manual work directly related to the management or general operations of the employer, and the employee must exercise discretion and independent judgment on matters of significance.
- There are two types of professional exemptions, the learned professional and creative professional. To qualify for the learned professional employee exemption, the person’s primary duty must be performing work requiring advanced knowledge, defined as work predominantly intellectual in character and requiring consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning and must be customarily acquired by prolonged, specialized instruction. To qualify for the creative professional employee exemption, the person’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized artistic or creative field.
Notably, the ‘white collar’ exemptions do not apply to employees who perform manual labor or other repetitive tasks with their bodies, or to most police, fire fighters, paramedics or other first responders (even if the employee is high ranking, titles aren’t enough to guarantee exemption; rather, the position must truly be a policy-making desk job). Foremen who primarily do the non-exempt work of those they supervise are not exempt.
There are several other types of exemptions, including a computer employee exemption and an outside sales exemption, each of which come with their own list of primary duties that must be met to qualify.
There is also a highly compensated employee exemption (“HCE”), which states that employees whose total compensation is more than a prescribed minimum threshold are considered exempt from the FLSA if they perform at least one of the duties of any of the white collar exemptions described above. The salary minimum for HCEs was recently updated. See below for the latest numbers.
Recordkeeping and Posting Requirements
Under the FLSA, employers are responsible for keeping accurate timekeeping and pay records of all non-exempt employees. Further, employers must display official posters outlining the provisions of the FLSA in a conspicuous place in all their establishments. Employers can download FLSA posters and other required notices, along with guidance regarding the same, here.
Child Labor Rules
The FLSA includes workplace protections for minors. The FLSA regulations outline the number of hours that youth under 16 years of age can work, including prohibiting work during school hours, and includes a list of hazardous job duties prohibited for young workers. The Texas Workforce Commission (“TWC”) has issued additional rules about child labor that employers should be cognizant of if they are employing workers who are under 18 years old.
New FLSA Rules and Guidance
Below is a summary of some of the DOL’s latest wage and hour rules and guidance.
New Guidance on Volunteer Time (effective Mar. 14, 2019).
In March 2019, the DOL issued an opinion letter on volunteer time (and whether the time should be included in hours worked for the purposes of calculating overtime pay). The DOL has indicated that it is okay to not pay employees for volunteer work representing the employer outside of work hours, so long as several conditions are met:
- The volunteer work must be truly optional, with no pressure to participate and no employment consequences for employees who choose not to volunteer.
- The volunteer work must not be of the same nature as the work the employee is employed to perform. For example, a payroll employee who volunteers to cut the checks for vendors and contractors used to staff a charity event, would be performing volunteer work identical to her normal job functions for the employer.
- The volunteer work must be for a civic or charitable purpose.
- An employee cannot waive or otherwise volunteer to work overtime.
Minimum Salary for Exempt Employees (effective Jan. 1, 2020).
On January 1, 2020, the DOL’s final rule became effective, updating the minimum earning thresholds for white collar and highly compensated overtime exemptions. The rule increased the minimum salary threshold for the white collar exemptions to $35,568 a year ($684 per week), and for the Highly Compensated Employee (“HCE”) exemption the minimum was increased to $107,432 per year.
Calculating Regular Rate of Pay for Overtime Calculation (effective January 15, 2020).
Last year, the DOL clarified that certain employee perks and benefits are not included in the regular rate of pay when calculating overtime rate, including:
- Nominal non-cash gifts (e.g., coffee, snacks, coffee cups, t-shirts, raffle prizes).
- “Perks” and conveniences for the employee (e.g., on-site massages, recreational facilities, wellness programs, tuition payments).
- Discretionary bonuses not based on some pre-established, objective criteria.
- Payments for time not worked (e.g., paid time off, on-call pay, etc.).
- Reimbursements for business expenses.
- Retirement and insurance plan contributions.
See additional guidance to assist employers in calculating an employee’s regular rate of pay here.
Proposed Independent Contractor Rule Rescinded
On January 7, 2021, the DOL published a final rule clarifying the standard for employee versus independent contractor status under the FLSA. As a reminder, the FLSA provisions only apply to employees, not independent contractors. The standard was more lenient for employees to classify workers as independent contractors excluded from the FLSA. The rule was set to take effect on March 8, 2021; however, pursuant to President Biden’s regulatory freeze, the final rule was delayed and the DOL has since announced that it plans to rescind the rule.
In its place, we anticipate a more stringent independent contractor test, possibly similar to California’s “ABC” test, which has been adopted in some iteration by almost two-thirds of the states. The “ABC” test requires that in order to be classified as an independent contractor, the worker must meet all three of the following factors:
- The worker is free from control or direction in the performance of the work;
- The work is done outside the usual course of the company’s business and is done off the premises of the business; and
- The worker is customarily engaged in an independent trade, occupation, profession, or business.
March 2020 Joint Employer Status Rule Rescinded
On March 16, 2020, the DOL’s final rule revising and updating regulations interpreting joint employer status under the FLSA went into effect. As a reminder, entities that meet the joint employer test are jointly and severally liable to employees for any FLSA violations. The new rule established a four-factor balancing test for deciding whether two entities were considered joint employers. The DOL has rescinded this new rule, and in its place, we anticipate a new joint employer rule which will likely adopt a more expansive definition of joint employer status.
This article was prepared by Lloyd Gosselink’s Employment Law Practice Group: Sheila Gladstone, Sarah Glaser, and Emily Linn. If you would like more information, please contact Sheila at 512.970.5815 or firstname.lastname@example.org, Sarah at 512.221.6585 or email@example.com, or Emily at 214.755.9433 or firstname.lastname@example.org.