Fair Labor Standards Act (FLSA)
HR Glossary for HR Professionals
Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.
Fair Labor Standards Act (FLSA)
What is FLSA?
FLSA is the Fair Labor Standards Act, a US federal law that establishes minimum wage and overtime pay, recordkeeping, and child labor standards that affect full-time and part-time workers. The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) enforces the FLSA. For a full reference guide on all things FLSA, click here.
Exempt vs non-exempt
As part of the Fair Labor Standards Act (FLSA), employers are required by law to to pay non-exempt employees overtime for every hour worked in excess of 40 hours. These laws were put in place in order to assure fair workplace standards for all employees.
Non-exempt employees working more than 40 hours in a work week are eligible for overtime. These employees should receive a minimum of 150% their regular pay rate for any hour worked in excess of 40 hours for that particular work week. On a federal level, there is no maximum limit to overtime unless an individual is younger than 16. All employee hours should be documented according to Department of Labor (DOL) standards.
Employers are not responsible for paying overtime to employees labeled “exempt.” See who’s exempt.
The Fair Labor Standards Act (FLSA) also requires employers to post overtime and minimum wage standards in high traffic, clearly visible areas in the workplace. These posters should be accessible to all employees and prospective employees.
As a general rule, most employers are required to abide by overtime laws set by FLSA.
FLSA Changes in 2020
On December 12, 2019 the Department of Labor (DOL) announced a Final Rule that allows employers to more easily offer perks and benefits to their employees.
The Final Rule marks the first significant update to the regulations that govern regular rate requirements under the Fair Labor Standards Act (FLSA) in over 50 years. The requirements define what forms of payment employers include and exclude in the FLSA’s “time and one-half” calculation when determining overtime rates.
The previous regulatory landscape left employers uncertain about the role that perks and benefits play when calculating the regular rate of pay. The new rule clarifies which perks and benefits must be included in the regular rate of pay, as well as which perks and benefits an employer may provide without including them in the regular rate of pay.
The DOL clarifies the regulations to confirm that employers may exclude the following from an employee’s regular rate of pay:
- Cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access, and fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance;
- Payments for unused PTO (paid leave);
- Payments of certain penalties required under state and local scheduling laws;
- Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”;
- Certain sign-on bonuses and longevity bonuses;
- Cost of office coffee and snacks to employees as gifts;
- Discretionary bonuses, by clarifying that the label given a bonus doesn’t determine whether it’s discretionary or providing additional examples and;
- Contributions to benefit plans for accident, unemployment, legal services, or other events that could cause future financial hardship or expense.
Additionally, the Final Rule includes clarification that the label given a bonus doesn’t determine whether it’s discretionary, and provides fact-based examples of discretionary bonuses that may be excluded from an employee’s regular rate of pay under the FLSA. The DOL has also made two substantive changes to the existing regulations.
- The DOL eliminates restrictions that “call-back” pay and other payments similar to call-back pay must be “infrequent and sporadic” to be excludable from an employee’s regular rate while maintaining that such payments must not be prearranged.
- The DOL updated its regulations pertaining to the “basic rate,” under the FLSA as an alternative to the regular rate under specific circumstances. Under the Final Rule, employers using an authorized basic rate may exclude from the overtime computation any additional payment that would not increase total overtime compensation by more than 40 percent of the higher of the applicable local, state, or federal minimum wage a week on average for the overtime workweeks in which the employer makes the payment.
The Final Rule will officially publish on December 16, 2019, in the Federal Register, with an effective date of January 15, 2020