By Peter Limone, President & CFO
Like an old house with a dozen additions, U.S. employment law is a hodgepodge of regulations. Acts have been tacked on over the years, but the foundation upon which everything rests is the Fair Labor Standards Act.
Last fall, the Obama administration’s Department of Labor chose to give the 1938 law a fresh coat of paint. It issued an overtime rule, halted that November by a Texas judge, that was intended to raise the salary threshold for exemption from overtime pay. If implemented, the regulation would extend overtime pay to 4.2 million currently exempt employees.
Even without the overtime rule, though, the FLSA is a labyrinth of regulations. And while violations can bring consequences ranging from $10,000 fines to potential jail time, there’s more reason than risk management to abide by the FLSA.
Want to build trust with your employees? FLSA compliance shows that you have their best interests at heart. What’s more, if your company was one of many that updated its pay structures before the Final Rule was overturned, it signals you’re a fair employer ahead of the curve.
Rules of the house
So if you want to keep your employees happy (and your business out of legal trouble), you’ll need to closely follow the FLSA.
But with entire books written about the law, how can you possibly become an expert while keeping a handle on your business? Fortunately, we’ve put together this primer to help you learn the nooks and crannies of the FLSA:
- The FLSA does not require payment for vacations, sick days, or holidays.
Payment for off-the-clock hours is a tricky issue, but it’s one left unaddressed by the Fair Labor Standards Act. In some areas, however, state and local bodies have begun to carve out paid leave laws. Without the FLSA to guide you, it’s best to defer to state and local laws while matching the benefit offerings of competitor companies.
The patchwork of paid leave laws becomes particularly difficult to navigate when you employ workers in multiple locations. At Innovative Employee Solutions, we recently helped an employer-of-record client meet compliance requirements for about 300 workers. Across more than 30 jurisdictions, we maintained the company’s cost of labor while complying with applicable paid sick time notification requirements.
- The FLSA does not define full- or part-time employment, but it does have overtime pay requirements.
While most employers distinguish between these two classifications, the FLSA applies to both full- and part-time employees. It requires that nonexempt employees be paid overtime when they work more than 40 hours per week.
What, exactly, is at stake for violators? Reusable bag manufacturer Unwrapped Inc. was recently ordered to pay — on top of other penalties for labor law infractions — a whopping $890,021 for overtime violations.
But be warned, state-specific laws apply here, too. In California, for example, overtime kicks in when a person works more than eight hours in a day. Carefully check requirements for each state in which your employees work. As an employer of record, we ensure compliance with overtime laws for companies with workers in any U.S. state — or all of them, in the case of one client.
- Employers must ensure workers earn at least minimum wage, even if they receive tips or commission.
Although the FLSA sets the federal minimum wage at $7.25 per hour, things get more complicated for tipped or commission-based workers. Employers must pay an hourly wage to tipped employees that, combined with an individual’s regular tips, equals $7.25 per hour or more.
But what about state and local minimum wage laws? New York, for example, has 14 levels for minimum wages that differ by region and sector. In such situations, the employee is entitled to the highest wage prescribed by the laws. We do the digging to ensure contingent workers who earn sales commission are paid at least the applicable local, state, or federal minimum.
- The FLSA does not require employers to notify an employee prior to termination. The FLSA might not require termination notification, but other additions do. The WARN Act, for example, requires employers to give notice in advance of certain mass layoffs or plant closures. Then, after they’ve been laid off, terminated employees have rightsto continuing healthcare coverage and, in some circumstances, unemployment benefits.
- Industrial homework is prohibited under the FLSA.
Industrial homework — sometimes called piecework — refers to goods produced off the clock for the benefit of the employer, and it’s more or less banned by the FLSA. The DOL does make occasional exceptions when safety or health concerns aren’t present, but companies must obtain authorization before assigning such tasks.
- The FLSA provides worker classification guidelines.
Independent contractor classification has been a hot topic recently in employment law, and the FLSA includes strict guidelines about it. The law uses a broad definition of the term “employ,” meaning its minimum wage and overtime provisions apply to all workers economically dependent on their employers. Independent contractors don’t have this type of employer relationship: They’re in business for themselves.
This distinction is helpful, but according to the U.S. Supreme Court, there’s no single test to determine an individual’s classification. How, then, can employers know how to classify their workers? All facets of an employment situation must be considered. A recent settlement that classifies Lyft drivers as independent contractors demonstrates the murkiness of this issue.
For companies hesitant to wade into the worker classification swamp, we move employees to our payroll. This mitigates the risk of you incorrectly classifying them without affecting the individual’s status as a contract worker.
Considering the complexity of employment laws, maintaining compliance can feel like constructing a house of cards. One miswritten policy or rounding error can bring the whole thing crashing down on well-meaning employers.
Want to build your business on firmer ground? Work with a payrolling provider like IES. You find the talent — we’ll handle headaches like the FLSA.
Peter Limone is the president and CFO of Innovative Employee Solutions, a leading nationwide employer of record that specializes in human relations and payroll services. Founded in 1974 in San Diego, California, IES has grown into one of the city’s largest women-owned businesses and been named one of its “Best Places to Work” for nine years in a row.
Peter joined IES in 2011 as the company’s corporate controller. He was promoted to CFO the following year, and in 2013, he was also named company president. Prior to his work at IES, Peter worked for 3E Company, where he oversaw integration of the company’s accounting, financial, and tax systems. He has also served as division vice president of finance and information systems at Follett Software Company.
