The Fair Labor Standards Act (FLSA) Status determines whether an employee is eligible for overtime pay or not. It categorizes employees into two main statuses: "exempt" and "non-exempt." Exempt employees are typically not eligible for overtime pay, while non-exempt employees must receive overtime pay for hours worked beyond the standard 40-hour work week.
The FLSA was enacted in 1938 by President Franklin D. Roosevelt as part of the New Deal. Its primary purpose was to protect workers from excessively long hours and poor working conditions. It also established the minimum wage, overtime pay regulations, and child labor standards, which continue to form the backbone of American labor laws.1
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FLSA Status brings significant advantages to employees, ensuring they receive fair wages and equitable treatment at work. Here are some benefits of FLSA Status:
FLSA requires employers to pay non-exempt employees overtime, at a rate of one and a half times their regular rate of pay, for all hours worked over 40 in a workweek.
Equal pay is the concept of paying employees the same amount for equal work, regardless of their gender, race, or other protected characteristics.
Minimum wage protection under the FLSA ensures that employees are paid a fair wage for their work. The federal minimum wage is currently set at $7.25 per hour, however, some states have higher minimum wages.2
The FLSA is a federal law that sets minimum wage, overtime pay, and other labor standards for employers and employees. To determine the FLSA status of an employee, employers must consider three tests: the Salary Basis Test, the Salary Level Test, and the Duties Test.
This assesses whether an employee is paid a predetermined and fixed salary that is not subject to reductions due to variations in the quality or quantity of work.
This evaluates if an employee's salary meets a minimum specified amount — a threshold set by the Department of Labor (DoL).
This involves a review of the employee's job duties to ascertain if they primarily involve executive, administrative, or professional duties as defined by FLSA.3
All non-exempt employees under FLSA Status are entitled to overtime pay. This rule applies to employees regardless of their job titles or salaries if they fall under the non-exempt category.
HR can adhere to the FLSA by maintaining accurate records of employee hours, regularly reviewing employees' FLSA statuses, ensuring non-exempt employees are compensated for overtime, and stay updated on changes to FLSA regulations.
Independent contractors are individuals or businesses that provide services to others without the expectation of long-term employment. They are typically hired on a project-by-project basis and are not subject to the same regulations as full-time employees.
The U.S. Department of Labor (DOL) has established three classifications of independent contractors:
1. Statutory Nonemployees: These are individuals who are not considered employees under the FLSA. They are typically hired to perform specific tasks and are paid a flat fee for their services. This includes independent contractors, freelance workers, and consultants.
2. Exempt Nonemployees: These are individuals who are not considered employees under the FLSA, but are subject to certain exemptions from the minimum wage and overtime requirements. This includes certain professionals, such as doctors, lawyers, and accountants, as well as certain creative professionals, such as photographers and writers.
3. Employees: These are individuals who are considered employees under the FLSA and are subject to the minimum wage and overtime requirements. This includes full-time, part-time, and temporary employees.
The FLSA excludes certain types of employees based on the nature of their job and industry. Exclusions may be based on the relationship of the worker with the employer, IRS common law rules, and the level of control the employer has over the worker, both behaviorally and financially.
The relationship between an employer and employee is pivotal in determining an individual's status under the FLSA. This relationship hinges on the degree of control that the employer exerts over the employee's work. The FLSA mandates that employers must compensate their employees with at least the federal minimum wage and provide overtime wages for any hours worked beyond the standard 40 in a given workweek.
Additionally, the FLSA enforces restrictions on the number of hours that minors can work and upholds the principle of equal pay for equivalent work, further underlining its role in shaping employer-employee relationships.
The IRS Common Law Rules provide a definitive set of guidelines used to distinguish between an employee and an independent contractor for taxation purposes. These rules, based on the Internal Revenue Code, assess the employment status of workers with federal tax liabilities. The primary factors examined include the employer's degree of control over the worker, the worker's financial investment in the business, and the stability of their relationship.
The behavioral control test looks at the level of control the employer has over the worker. If the employer has the right to control or direct how the worker performs the job, then the worker is considered an employee. Factors that are considered when determining the level of control include the extent to which the employer can:
• Instruct the worker on how to do the job
• Monitor the worker’s performance
• Require the worker to report progress
• Require the worker to follow specific instructions
• Require the worker to work certain hours
• Provide the worker with training or tools
• Require the worker to use specific techniques or methods
• Require the worker to work with certain materials
• Require the worker to work with certain people
• Require the worker to follow specific procedures
• Require the worker to submit reports
• Require the worker to attend meetings
The more control the employer has over the worker, the more likely it is that the worker is considered an employee.
The financial control test looks at whether the employer has the right to control how the worker is paid, including the amount and method of payment, and who pays the worker. This includes whether the employer reimburses the worker for expenses, pays a salary or hourly wage, or provides other forms of payment. It also considers whether the employer withholds taxes from the worker's pay, or if the worker is responsible for their own taxes.
Some employers may be exempt from FLSA regulations, primarily if they do not engage in interstate commerce. However, given the broad definition of "interstate commerce," most businesses fall under the jurisdiction of the FLSA.
Ultimately, understanding FLSA Status is crucial for both employers and employees. Through this understanding, businesses can promote fair labor practices, improve compliance, and maintain a competitive edge in the marketplace.
The Fair Labor Standards Act (FLSA) is a federal law that establishes the minimum wage, overtime pay, recordkeeping, and child labor standards for employers and employees in the United States. It applies to most private and public sector employers.
The three tests used to determine FLSA status are the salary basis test, the salary level test, and the duties test. The salary basis test looks at whether the employee is paid on a salaried or hourly basis. The salary level test looks at whether the employee earns at least the minimum salary required by the FLSA. The duties test looks at the job duties of the employee and determines whether they are exempt or non-exempt from FLSA overtime regulations.
Yes, the FLSA applies to employers and employees in the United States.
Section 13(a)(15) of the FLSA exempts certain employees from the overtime provisions of the Act. This exemption applies to employees who are employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in the regulations.
The Family and Medical Leave Act (FMLA) is not part of the FLSA. The FMLA provides eligible employees with up to 12 weeks of unpaid, job-protected leave for certain qualifying events, such as the birth or adoption of a child, or a serious health condition of the employee or a family member.
History | U.S. Department of Labor. (n.d.). www.dol.gov. https://www.dol.gov/agencies/whd/about/history#:~:text=The%20Wage%20and%20Hour%20Division%20was%20created%20with%20the%20enactment
What Is FLSA Status (And Why Does It Matter)? - Hourly, Inc. (n.d.). www.hourly.io. https://www.hourly.io/post/what-is-flsa-status-and-why-does-it-matter
Minimum wage | USAGov. (2023, April 6). www.usa.gov. https://www.usa.gov/minimum-wage#:~:text=The%20federal%20minimum%20wage%20is