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Fair
Labor Standards Act of 1938, as Amended Who is Covered? The Fair Labor Standards Act (FLSA) establishes minimum
wage, overtime pay, record-keeping and child labor standards that affect
over 100 million full- and part-time workers in the private sector and
in federal, state and local governments. The Act applies to enterprises that have employees who are
engaged in interstate commerce, producing goods for interstate commerce,
or handling, selling or working on goods or materials that have been
moved in or produced for interstate commerce. For most firms, an annual
dollar volume of business test of $500,000 applies (those enterprises
under this dollar amount are not covered). These organizations are covered by the Act regardless of
their dollar volume of business: hospitals, institutions primarily
engaged in the care of the sick, aged, mentally ill or disabled who
reside on the premises; schools for children who are mentally or
physically disabled or gifted; preschools, elementary and secondary
schools and institutions of higher education; and federal, state and
local government agencies. Employees of firms that do not meet the $500,000 annual
dollar volume test may be individually covered in any workweek in which
they are individually engaged in interstate commerce, the production of
goods for interstate commerce, or an activity that is closely related
and directly essential to the production of such goods. Domestic service workers, such as day workers,
housekeepers, chauffeurs, cooks, or full-time babysitters, are also
covered if they receive at least $1,000 (1995) in cash wages from one
employer in a calendar year, or if they work a total of more than 8
hours a week for one or more employers. An enterprise that was covered by the Act on March 31,
1990, and that ceased to be covered because of the increase in the
annual dollar volume test to $500,000, (as required under the 1989
amendments to the Act), continues to be subject to the overtime pay,
child labor and recordkeeping requirements of the Act. EXEMPTIONS This section of this file is under major revision. Sweeping new regulations governing exemptions, duties, compensation, will take effect on August 18, 2004. Here is a brief summary of those changes: Executive exemption -- To qualify for the executive employee exemption, all of these must be met: (1) the employee must be paid on a salary basis at a rate of at least $455 per week ($23,660 per year); (2) the employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; (3) the employee must customarily and regularly direct the work of at least two other full-time employees or their equivalent; and (4) the employee must have the authority to hire or fire other employees, or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. The executive exemption now requires employee to have "hire or fire" authority or to make corresponding recommendations that are given "particular weight"; eliminates the special rule for "sole charge" executives; requires 20% owner/employees to be "actively engaged" in management; and increases the salary requirement to $455 per week or $23,660 per year. Administrative exemption -- To qualify for the administrative employee exemption, all of these tests must be met: (1) the employee must be compensated on a salary or fee basis of $455 per week or more; (2) the employee's primary duty must be office or non- manual work directly related to the management or general business operations of the employer or the employer's customers; and (3) the employee's primary duty includes the exercise of discretion and independent judgment in significant matters. The administrative exemption maintains the current regulation's requirement for the employee to "exercise discretion and independent judgment". The new rule includes "management or general business operations" and deletes "management policies" of the old regulations. Professional exemption -- There are two general types of exempt professional employees: learned professionals and creative professionals. Learned professionals. To qualify for the learned professional employee exemption, all of these tests must be met: (1) the employee must be paid on a salary or fee basis at a rate of $455 per week or more; (2) the employee's primary duty must be work requiring "advanced knowledge," which means it is predominantly intellectual in character and requires the consistent exercise of discretion and judgment; (3) the advanced knowledge must be in a field of science or learning; and (4) the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction -- hence, a controller or chief accountant will need a college degree in "accounting", not simply many years of work as a book keeper. The new regulations define "work requiring advanced knowledge" as "work that is predominantly intellectual in character, and includes work requiring the consistent exercise of discretion and judgment". The rules also clarify that veteran status alone is insufficient to satisfy the professional exemption. Creative professionals. To qualify for the creative professional employee exemption, both of these tests must be met: (1) the employee must be compensated on a salary or fee basis at a rate of $455 per week or more; and (2) the employee's primary duty must require invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. The regulations allow for case-by-case determinations of the creative professional exemption, and they clarify the exemption as to journalists. Highly compensated employees -- A newly defined subcategory consists of "highly compensated" employees performing office or non-manual work who are paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis). These employees are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard exemption tests. The $100,000 standard is significantly higher than the proposed $65,000 threshold thus making it more difficult for employers to satisfy the threshold. Computer employee exemption -- To qualify for the computer employee exemption, these tests must be met: (1) the employee must be compensated either on a salary or fee basis of at least $455 per week or, if paid on an hourly basis, at least $27.63 an hour; and (2) the employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled employee in the computer field performing these duties: (1) application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; (2) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (3) design, documentation, testing, creation or modification of computer programs related to machine operating systems; or (4) a combination of these duties, the performance of which requires the same level of skills. Outside sales exemption -- To qualify for the outside sales employee exemption, all of these tests must be met: (1) the employee's primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) the employee must be customarily and regularly engaged away from the employer's place or places of business. The 20% limitation on non-exempt work has been eliminated in favor of a "primary duty" approach. Blue collar employees -- The exemptions apply only to "white collar" employees who meet the salary and duties tests in the regulations. The exemptions do not apply to laborers or other "blue collar" employees who perform work involving repetitive operations with their hands, physical skill and energy. Non-management employees in production, maintenance, construction and similar occupations (like carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers, and laborers) are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt from overtime, no matter how highly paid they might be. Although the new regulations are significantly clearer and more precise than the current regulations, employers should recognize that certain classifications of employees, -- inside sales employees, for instance -- cannot be classified as exempt unless they satisfy the criteria of one of the exempt classifications. Certain
employees may be partially exempt from the Act's overtime pay
requirements. They include: -- Employees of hospitals
and residential care establishments that have agreements with the
employees to work a 14-day work period in lieu of a 7-day workweek (if
the employees are paid overtime premium pay within the requirements of
the Act for all hours worked over 8 in a day or 80 in the 14-day work
period, whichever is the greater number of overtime hours); -- Employees who lack a
high school diploma or who have not completed the eighth grade may be
required by their employer to spend up to 10 hours in a workweek in
remedial reading or training in other basic skills that are not
job-specific, as long as they are paid their normal wages for the hours
spent in such training. Those employees need not be paid overtime
premium pay for their remedial training hours. Basic Provisions/Requirements The Act requires employers of covered employees who are
not otherwise exempt to pay these employees a minimum wage of not less
than $5.15 an hour beginning September 1, 1997. Youths under 20 years of
age may be paid a minimum wage of not less than $4.25 an hour during the
first 90 consecutive calendar days of employment with an employer. Employers may not displace any employee to hire someone at
the youth minimum wage. Employers may pay employees on a piece-rate
basis, as long as they receive at least the equivalent of the required
minimum hourly wage rate. Employers of tipped employees, i.e., employees
who customarily and regularly receive more than $30 a month in tips, may
consider the tips of these employees as part of their wages, but must
pay a direct wage of at least $2.13 per hour if they claim a tip credit.
Certain other conditions must also be met. The Act also permits the hiring of certain employees
at wage rates below the statutory minimum wage under certificates issued
by the Department: -- Full-time students in
retail or service establishments, agriculture, or institutions of higher
education; -- Employees whose earning
or productive capacity is impaired by a physical or mental disability,
including those related to age or injury, for the work to be performed. The Act does not limit the number of hours in a day or
days in a week an employee (at least 16 years old) may be required or
scheduled to work, including overtime hours. The Act requires that
covered employees, unless otherwise exempt, be paid not less than one
and one-half times their regular rates of pay for all hours worked in
excess of 40 in a workweek. Employers are required to keep records on wages, hours and
other items as set out in the Department of Labor's regulations. Most of
this information is of the type generally maintained by employers in
ordinary business practice. Performance of certain types of work in an employee's home
is prohibited under the Act unless the employer has obtained prior
certification from the Department of Labor. Restrictions apply in the manufacture of knitted
outerwear, gloves and mittens, buttons and buckles, handkerchiefs,
embroideries, and jewelry (where safety and health hazards are not
involved). Employers wishing to employ homeworkers in these industries
are required to, among other things, provide written assurances to the
Department that they will comply with the Act's wage and other
requirements. The manufacture of women's apparel (and jewelry under
hazardous conditions) is generally prohibited, except under special
certificates that allow homework in these industries when the homeworker
is unable to adjust to factory work because of age or physical or mental
disability, or is caring for an invalid in the home. Special provisions apply to state and local government
employment. (See link below). It is a violation of the Act to fire or in any other
manner discriminate against an employee for filing a complaint or for
participating in a legal proceeding under the Act. The Act also
prohibits the shipment of goods in interstate commerce, which were
produced in violation of the minimum wage, overtime pay, child labor, or
special minimum wage provisions. Assistance Available More detailed information on the FLSA, including copies of
explanatory brochures and regulatory and interpretative materials, may
be obtained by contacting local Wage-Hour offices listed in most
telephone directories under U.S. Government, Department of Labor, Wage
and Hour Division. (Link below). Penalties Willful violations may be prosecuted criminally and the
violators fined up to $10,000. A second conviction may result in
imprisonment. Employers who willfully or repeatedly violate the minimum wage or
overtime pay requirements are subject to civil money penalties of up to
$1,000 per violation. When a civil money penalty is assessed, employers have the
right, within 15 days of receipt of the notice of such penalty, to file
an exception to the determination. When an exception is filed, it is
referred to an administrative law judge for a hearing and determination
as to the appropriateness of the penalty. If an exception is not filed,
the penalty becomes final. The Secretary of Labor may also bring suit for back pay
and an equal amount in liquidated damages and obtain injunctions to
restrain persons from violating the Act. Employees may also bring suit,
where the Department has not done so, for back pay and liquidated
damages, as well as attorney's fees and court costs. Relation to State, Local and Other Federal Laws State laws also apply to employment subject to this Act.
When both this Act and a state law apply, the law setting the higher
standards must be observed. Links
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