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Common FLSA Pitfalls

The Fair Labor Standards Act (FLSA) is a federal statute that applies to most jobs within the United States. The law regulates such things as minimum wages, overtime hours and child labor laws. In addition to following these regulations, your business should also use salary reports, compensation surveys and other market compensation data to make sure your employees are being compensated fairly.

While the FLSA is designed to protect employees, there are certain elements of the law that can be a cause of confusion for employers. The following is a list of common FLSA pitfalls that employers can and do fall into:

  • “The FLSA doesn’t apply to our business because we’re too small”. While many state and federal employment laws take the number of employees into consideration, the FLSA does not; therefore, this law does apply no matter how big or small your business may be. The FLSA covers all employees who work for a company that affects interstate commerce, which is the majority of businesses.  To save time, legal expenses and a lot of headache, it is safe to assume that your employees are covered under the laws of the FLSA.
  • “Our salaried and/or high ranking employees are exempt from overtime pay”. This is not entirely true. There are many non-exempt employees that are paid set salaries based on salary reports, compensation surveys and other market compensation data, such as secretaries or technicians. Also, even if an employee has a high ranking job title, such as manager or director, it does not necessarily mean they are exempt. The Department of Labor has designed tests regarding the nature of each employee’s job in order to qualify for exemption. Pay and job title are completely irrelevant.
  • “Overtime is not given because the fixed salary covers straight time and overtime pay”. No matter how large the salary may be, this is false. The Department of Labor requires that if an employee exceeds the maximum weekly number of hours worked, overtime must be paid because salary pay only covers straight time pay.
  • “Our employees volunteer extra time, so no overtime is paid”. Employers should never allow employees to work extra hours off the clock because this can lead to wage claims and lawsuits. At a minimum, the employee must be paid minimum wage and overtime pay for each additional hour. There are exceptions for organizations, such as governmental entities or non-profits, which may have actual volunteers. For these types of organizations, every unpaid individual must sign a volunteer agreement in order to avoid lawsuits.
  • “Our business provides employees with compensatory time in place of overtime”.  While governmental employers are allowed to use compensatory time, private employers are not; however, private employers may informally use compensatory time by adjusting the schedule of a work week to make sure that no employee works over 40 hours. Keep in mind that in most cases, overtime hours cannot be averaged over a long time period. All overtime worked within one work week must be accounted for.
  • “Contracted employees don’t receive overtime”. Independent contractors do not get paid overtime as they are not considered to be employees of the company. While this is true, problems occur when employers misinterpret what it means for an employee to be considered a contractor. For example, employers may hire temporary workers during busy months of the year to help with the workload and think of them as contract employees. In reality, these workers are not contractors and are covered under FLSA.

It is important to know the regulations of FLSA in regards to your business and employees. Additionally, you should be using compensation surveys and salary reports in order to establish a fair rate of pay for your employees. At WageWatch, our market compensation professionals can provide your business with accurate, up-to-date compensation surveys and salary reports from businesses in your industry. To learn more about our compensation surveys, salary reports and other market compensation data, please call 888-330-9243 or contact us online.