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FLSA, an abbreviation of the Fair Labor Standards Act, was initially introduced in 1938 by the Department of Labor (DOL) as a means of expanding the wage and hour protection of workers in the US. Since then, the act has been amended in various ways by many past administrations.
Disclaimer: The content presented in this blog is purely informative and should not be considered as legal advice.
In general, the FLSA talks about minimum wage, overtime pay, recordkeeping, and youth employment standards. Furthermore, it requires that US-based businesses keep track of the work hours of their employees and store them for at least two years. These, among others, are terms that - if not followed by small, medium and large businesses could result in an FLSA lawsuit.
To put it into perspective, the dollar value of FLSA lawsuits has skyrocketed over the last three years. According to law firm Seyfarth Shaw in their annual report Workplace Class Action Litigation Report, the cost of non-compliance in 2017 totaled $2.72 billion—up from $1.75 billion in 2016.
"A dollar spent on risk management and compliance is better than a dollar spent on settling a class-action lawsuit" -Matman
Furthermore, the recent changes that will be implemented on January 1st of 2020 have created a buzz where businesses are trying to understand what its implications are.
Starting and maintaining compliance with the FLSA regulations is neither complicated nor expensive. As we learn more about the regulation and the upcoming changes to the DOL/FLSA, we will discuss different ways for businesses to remain compliant with it.
Who is subject to the FLSA?
Not every individual, group or organization is subject to the FLSA. In terms of employees, the FLSA regulations apply to:
- Employees from the private sector, both full- and part-time
- Employees working across state governments
On the other hand, the FLSA rules and regulations apply to all companies who:
- Generate annual sales of $500,000, or more
- Operate as an institution primarily engaged in the care of the sick, aged, or the mentally ill who reside within the premises of the company
- Operate as schools for mentally, physically disabled or gifted children
- Operate as educational institutions, both for-profit and not for profit;
- Identify themselves as a public agency
What are the main implications of the FLSA?
The main responsibility of the FLSA is to ensure that employees across the public and private sectors are being treated fairly by their employers. The way the FLSA tries to accomplish its goal is by establishing the well-regarded minimum wage, alongside overtime provisions, record keeping commandments, and youth employment standards.
The first time the minimum wage made an appearance was in 1938. At that time, not everyone was covered by the act and the minimum age was only 25 cents. According to the FLSA, today the required minimum wage for an average American employee is:
- $7.25 if 20 years or older
- $4.25 if younger than 20 years of age
These rates are set on the Federal level but many states have their own minimum wage laws that may entitle the employees of those states to a minimum wage premium. As such, employers have to take into consideration both the Federal and state laws in order to stay in compliance with the act.
All of the federal overtime provisions can be found under the FLSA. According to the provisions stated under the FLSA,
“Unless exempt from overtime pay, employers have to pay their employees every additional hour worked above the regular 40-hour workweek at a rate that is no less than 1.5 their regular pay rate.”
To illustrate, let’s assume that Joe is one of your employees who receives the minimum $7.25 per hour. As an employer, you assume that Joe works 40 hours every week and thus is entitled to earnings of $290. However, a deadline for a project is approaching and Joe is required to work an additional 2 hours this week - which results in a total of 42 hours. Under such circumstances, the employer will have to compensate Joe with a rate of $10.875 an hour or $21.75 for the two extra hours.
The reason why we have implied an assumption in Joe’s example is that in real cases employers tend to over- or underestimate the work hours of their employees in the absence of an accurate timesheet tool. In turn, they face substantial losses that could cost them thousands of dollars every month. While it is important to stay compliant with the overtime provisions, it is also of importance to pay attention to the actual work contributed by an employee, so that both parties remain healthy.
Record keeping and Timekeeping
Possibly one of the most important aspects of the FLSA is recordkeeping and timekeeping. The FLSA is relatively flexible when it comes to the form of the records. Employers have the freedom to pick what technology they want to used to track, record, and maintain their work records. All that is required by the act is that the employer keeps the following records for each non-exempt worker, which includes:
- Employee's full name and social security number.
- Address, including zip code.
- Birthdate, if younger than 19.
- Sex and occupation.
- Time and day of week when employee's workweek begins.
- Hours worked each day.
- Total hours worked each workweek.
- Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
- Regular hourly pay rate.
- Total daily or weekly straight-time earnings.
- Total overtime earnings for the workweek.
- All additions to or deductions from the employee's wages.
- Total wages paid each pay period. Date of payment and the pay period covered by the payment.
It seems like a lot right?
Most of the above data have to be filled out once and then reused every day, week or month (depending on the maintenance timeframe). In the past, most of these records were maintained by-hand - which ended up being a time-consuming task for business owners. As a result of emerging technologies, businesses now use digital time tracking tools to do all the bidding for them. Time tracking tools are accurate, easy-to-use and, in most cases, really affordable.
Another important detail about recordkeeping and timekeeping is the duration for which the records have to be retained. According to the DOL,
Each employer shall preserve for at least three years of payroll records, collective bargaining agreements, sales, and purchase records. Records on which wage computations are based
should be retained for two years, i.e., time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages.
The youth employment rules talk about child labor provisions enacted under the FLSA. The main purpose of these provisions is to ensure that when young people work, the work is safe and does not jeopardize their health.
More information about the child labor provisions can be found in the YouthRules! website.
The Expected 2020 Changes
In 2016, the DOL proposed changes to the exemption rules set forth by the FLSA. The proposition requested that the threshold for exempt employers be raised by more than 100%. This meant that for an employee to be exempt from the overtime pay, they would have to earn at least $47,476 per year, relative to the previous earnings of $23,660. However, the change was not approved by a federal District Court for the Eastern District of Texas, and thus never went into effect.
This was the case until October of 2019 when the DOL returned with the same proposal. However, this time, they had made amendments to the magnitude of the threshold. Instead of a 100% increase, they now requested an increase of 50%. The new threshold implied that employers that fell under executive, administrative and professional exemptions would have to earn $35,568 per year in order to be exempt from overtime pay. Furthermore, to help employers meet the new threshold, the DOL allowed that they cover 10% of the salary threshold with bonuses and commissions.
Worth noting is that these changes are expected to be applicable starting from the 1st of January, 2020. If you haven’t started adapting to these changes than now would be a great time to start.
The big question remains: How do you determine which employees are exempt?
FLSA Exemptions Test
According to the National Law Review,
“The duties tests, which require that employees meet certain duties requirements in order to be exempt from overtime, have not changed. The duties tests will remain the primary method for determining whether an employee is exempt, subject to the higher salary thresholds.”
Therefore, one of the many things that have not changed with respect to defining exemption rules is the fact that the FLSA exemptions test continues to be the primary method of determining who is exempt from overtime pay.
How to protect your company from potential FLSA lawsuits
Thus far we have talked about some of the most important aspects of the Fair Labor Standards Act (FLSA). We understand what criteria have to be met for a business to be considered “safe” from the act, and what the implications of the new 2020 changes are.
There are many ways for a business to stay compliant with the rules and regulations of the FLSA. There are traditional file keeping methods that tend to be a pain to maintain, and there are digital, or cloud-based services that help businesses store anything and everything in a virtual space.
Protect Your Business From Lawsuits
Keep track of all the timesheets directly from your phone
In our case, we are concerned with finding the most efficient tool that is cost-effective at the same time. As previously discussed, to remain compliant, businesses have to think of one aspect only, namely recordkeeping or in other words recording timesheets. These timesheets usually include both the work hours and overtime data for all employees within the business. However, keeping up with timesheets manually is a hassle, subject to estimations, miscalculations and other errors - which leads to numerous financial issues.
As such, to tackle this pain point, businesses end up turning to automation software for help. A simple time clock app is all there is to maintain timesheet records and protect yourself from potential lawsuits.
Also, an added benefit of the time clock app is that it includes a variety of features - i.e. location tracking, team activity insights, PTO records, mobile adaptability and more - designed to help businesses grow productive. And, there is a whole blog on productivity for you to read. So head on over to the atto blog.