We have compiled eight stories that encapsulate the most important pieces of recent FLSA news and highlight the insights pay professionals need to understand them.
When employers run afoul of the Fair Labor Standards Act (FLSA), costly remediation can follow. In 2019, a judge ordered Steak ‘n Shake to pay $7.7 million in liquidated damages to the misclassified managers it denied overtime pay. NaviHealth recently agreed to pay $4.69 million to resolve claims that it misclassified “care management employees” as exempt from overtime. Amazon settled a class-action lawsuit in May for $11 million after workers alleged they should have been paid for time spent in mandatory security searches. Back in January, PNC Bank said it would pay $2.75 million to a class of former customer service reps to settle allegations they were regularly required to work off the clock and denied overtime pay. The list could go on and on.
To avoid such hefty fines — and to ensure workers are compensated fairly — compensation leaders must understand the boundaries erected by the FLSA, in addition to state and local laws. But that’s a tall order considering the past year of U.S. Department of Labor updates.
Beginning today, we will share eight stories that encapsulate the most important pieces of recent FLSA news and highlight the insights pay professionals need to understand them.
Story time: Ashley makes pizzas at a little, family-owned Italian joint, which employs her full time. At the end of the night every Friday, after the floors have been mopped, her boss rounds up the workers and hands out paychecks. Ashley rarely looks at hers before feeding it into her bank’s ATM around the corner but this week, she looks to see how much she made putting in eight extra hours, covering for a coworker who took time off for a wedding. She discovers, however, that the pizzeria paid her $400, the same amount she always receives after working a 40-hour work week.
She mentions this to the woman in charge of the salad and sandwich station, since she also worked extra hours to cover for the absent coworker. This lady’s check seemed to be missing money, too. After talking to the other workers, Ashley discovers the restaurant has never paid anyone extra wages for overtime worked, which violates the Fair Labor Standards Act (FLSA), according to a poster hung in the back of the restaurant. Hoping to get their hands on the money they’ve earned, Ashley and her teammates file a complaint with the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD).
What does this mean for the pizzeria? Is the restaurant in the wrong? It paid Ashley and her co-workers well above the federal minimum wage — does that matter?
After reading through lots of WHD guidance, we can tell you this isn’t great news for the pizzeria. In the simplest terms, [the FLSA is] the federal law that primarily covers four things, with respect to employees. It establishes the standards for minimum wage, overtime, recordkeeping and youth employment. It covers both the private sector and … federal, state and local government.
That’s the FLSA in the simplest terms. It gets a little complicated, but employers need to get this law down, or they’ll have to pay up, big time.
Areas the FLSA Governs
Administered by the WHD, the FLSA sets the standards for minimum wage, overtime, recordkeeping and youth employment. The federal minimum wage is $7.25 per hour, but it’s important to note that many states have instituted minimum wage laws, too. Employers must be in compliance with both laws, which really means they have to pay their workers according to whichever standard is higher.
Unless exempt (we’ll talk about that in a moment), employees covered by the FLSA must be paid overtime for any hours worked beyond 40 in a workweek. Overtime pay is equal to time and one-half an employee’s regular rate of pay. Though the act does not specify a particular form, every covered employer must keep certain records for each non-exempt worker it employs.
Employers must record an employee’s name, social security number, address, birthday, sex, occupation and 12 other things the act lists. The act also makes the rules on child labor, which are expounded upon on the website YouthRules!. Employees must have turned 16 to work most non-farm jobs by federal standards, but some states say differently.
The FLSA’s employee rights poster mentions a few other protections that the law grants covered employees. For example, the law obligates employers to provide nursing mothers reasonable break time and a place (not a bathroom!) to express breast milk. And employers of workers who are tipped must pay employees at least $2.13 an hour and bring employees’ paychecks up to minimum wage if their tips don’t add up to meet that standard.
Employer and Employee Eligibility
Employers only have to follow these rules, however, if they are covered by the act. There are two ways that you can have coverage under the FLSA. That’s either enterprise coverage or individual coverage. A covered enterprise brings in at least $500,000 every year or “is engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises; a school for mentally or physically disabled or gifted children; a preschool, an elementary or secondary school, or an institution of higher education (whether operated for profit or not for profit); or is an activity of a public agency” according to WHD’s Handy Reference Guide to the Fair Labor Standards Act.
If an employer does not fall into those categories, that doesn’t mean it can totally ignore the provisions laid out by the FLSA. Remember, there are a few ways an employee can be covered by the act. An employee can be protected if his or her work involves interstate commerce, for one. Let’s say Ashley’s pizzeria makes only $350,000 in total sales, but it’s located in southern Michigan, a mile from the border of Indiana, and Hoosiers call in to order foil tins of eggplant parm and boxes upon boxes of cheesy bread. Employees deliver across state lines, which renders them covered.
It’s not always that obvious though. According to DOL, examples of covered employees who are engaged in interstate commerce also include: an employee who uses a telephone, facsimile machine, the U.S. mail, or a computer e-mail system to communicate with persons in another state; an employee who unloads goods which came from an out of state supplier; and an employee such as a cashier or waitress who uses an electronic device which authorizes a credit card purchase.
Now lets talk about a few more facts that make things a little complicated — brace yourselves. There are employees who are exempt from the FLSA who work for businesses that 100% fall into the covered categories we just laid out. For employees to be called exempt, they must pass a couple tests. “To qualify for exemption,” WHD wrote in Fact Sheet #17A, “employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulation.”
So if Ashley managed the pizzeria — meaning two other full-time employees reported to her and she could hire, fire and discipline workers — and she was paid $500 every week, then she could be exempt from the FLSA. But that isn’t so.
Where Employers Mess Up
Employers get into trouble by messing up on the overtime requirement quite frequently. A lot of employers, we find, wrongfully assume that their employees are exempt from overtime. We recently helped an employer that was part of a DOL investigation, and they said that the DOL is saying we’re not properly paying our employees overtime but they’re all exempt — look at their job description, we said they’re exempt. We had to explain that just because the job description says that, that’s not enough. They need to be exempt under the act, which that goes even further.
The PAID Process
Employers that have made FLSA mistakes can take action and potentially avoid litigation or a DOL investigation by self-reporting violations through the Payroll Audit Independent Determination (PAID) program, which WHD launched in March. “The program’s primary objectives are to resolve such claims expeditiously and without litigation, to improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed — faster,” the PAID website reads.
We recommend employers conduct audits through PAID because it can definitely significantly cut down on the probability that they end up in litigation or are subject to fines for violating the act. There are other experts, however, fear that participation may draw unwanted attention from state enforcement authorities.
Employers can participate in PAID by conducting a pay audit to spot non-compliant behaviors. If they find problem areas, they need to follow the steps outlined by WHD:
- Specifically identify the potential violations.
- Identify which employees were affected.
- Identify the time frames in which each employee was affected.
- Calculate the amount of back wages the employer believes are owed to each employee.
After that, the employer can reach out to WHD and discuss how to move forward. The employer will need to supply information, including back wage calculations with supporting evidence and methodology, an explanation of the scope of the violations, a certification that it has read up on all the program’s information, terms and compliance assistance materials and another certification that the employer is eligible for the program. If the employer needs to pay back wages, it will need to give out those checks by the end of the next full pay period after WHD gives it a summary of unpaid wages.
The FLSA says a lot about how employers are to pay their employees, and we now have a basic understanding of who it applies to and what it requires.
FLSA to-do List
- Hang the poster WHD requires all employers to put up in their workplaces.
- Implement a recordkeeping protocol and enforce it.
- Train managers to insist that employees record their hours within the recordkeeping system — and that they do so honesty. If they worked overtime, their entries need to reflect that.