Skip to main content Skip to footer site map

Fair Labor Standards Act (FLSA): What Employers Need to Know

  • Employee Benefits
  • Article
  • 6 min. Read
  • Last Updated: 06/18/2020

two people meeting to discuss the FLSA
This useful, one-page guide helps you classify employees based on salary level and job duties, understand regulations for tipped employees, and take action on recordkeeping and posting requirements.

Table of Contents

Passed in 1938, the Fair Labor Standards Act (FLSA) establishes standards for employee classification, minimum wage, overtime pay, child labor, and recordkeeping for covered full-time and part-time workers in the private sector and in most federal, state, and local government agencies. The law sought to protect employees from unfavorable work conditions and guarantee them certain rights. The FLSA is administered and enforced by the U.S. Department of Labor’s Wage and Hour Division.

The FLSA and its implementing regulations are complex, periodically updated, and generally must be changed through a notice and comment rulemaking process. Failure to comply with the provisions of the FLSA can lead to employer penalties and litigation.

Minimum wage

Under the FLSA, covered, nonexempt workers are entitled to the federal minimum wage, currently $7.25 per hour effective July 24, 2009. It's important to note many states and local jurisdictions established higher minimum wage rates for covered employees. Where an employee is covered under more than one minimum wage law, they are entitled to the higher rate.

Some workers receive tips as part of their job. In these cases, an employer may pay a tipped employee no less than $2.13 an hour in direct wages, providing that:

  • Tips plus the direct wages equal at least the federal minimum wage;
  • The employee retains all tips; and
  • The employee can depend on receiving more than $30/month in tips.

This is often referred to as a tip credit.

In the event of a gap between received tips and direct wages and the hourly minimum wage, the employer must make up the difference. Many states have enacted their own minimum wage laws specific to tipped employees. Employees are entitled to the provisions of the law, where covered under that law, that provides the greater benefit – local, state or federal.

Before an employer can use a tip credit, they must provide certain information to their employees. This includes the employee's right to keep all the tips they earn, unless employees agree to pool their tips under a valid tip pooling agreement. In March 2018, Congress amended the FLSA to prohibit employers from requiring employees to share tips with the employer, including managers or supervisors, regardless of whether the employer takes a tip credit. Further clarification is available on a DOL Wage and Hour Division Field Assistance Bulletin.


Under the FLSA, covered nonexempt employees must be paid at least 1.5 times their regular rate of pay for each hour worked over 40 hours in a workweek. A workweek is a fixed, recurring period of 168 hours or seven consecutive 24-hour shifts that does not necessarily correspond to a calendar week. There is no limit on the number of hours employees aged 16 or older may work, nor does it require overtime pay for work on Saturdays, Sundays, or holidays. State and local laws may vary with regard to overtime pay. As noted previously, employees covered under multiple laws are entitled to the provisions of the law that provides the greater benefit – local, state or federal.

Home care workers

According to the FLSA overtime rules, direct care workers are individuals who provide home care services, such as certified nursing assistants, home health aides, personal care aides, caregivers, and companions. As of January 2015, a DOL Final Rule concerning the FLSA mandated that direct care workers employed by agencies and other third-party employers are entitled to receive at least the federal minimum wage and overtime pay. Additionally, agencies and other third-party employers may no longer claim the overtime pay exemption for live-in domestic workers. Overtime pay for these workers is consistent with that of other workers covered by the FLSA. However, workers who act as independent contractors, employed only by those they assist or the individuals' families or households, may or may not be entitled to minimum wage and overtime pay, depending on the workers' duties.

Be careful to not confuse home care workers with residential care establishments, such as those in a nursing facility. Hospitals and residential care establishments have a partial exemption to the FLSA overtime provision. They may adopt, by agreement with employees, a 14-day work period instead of the traditional 7-day workweek if employees are paid at least 1.5 their hourly rate for working more than 8 hours in a day or 80 hours in a 14-day period, whichever is greater.

Employers should also review state wage and hour laws related to homecare workers which may be more restrictive.

Recordkeeping requirements

Every employer must keep certain records for each worker. There is no particular format that is required for these records, but an employer must be sure they include certain identifying information about the employee, dates of the pay period, and wages earned. There are additional recordkeeping requirements for nonexempt workers regarding hours worked, earnings, and any overtime pay, where applicable.

Employers can use any timekeeping method they choose as long as it is complete and accurate. An online timekeeping service may be particularly useful to help with such requirements.

Child labor laws

Businesses that employ workers under the age of 18 need to be aware of specific requirements designed to ensure that children aren't performing hazardous work and that working doesn't have a negative impact on their health or education. There are specific restrictions on the number of hours a minor under the age of 16 may work and the types of jobs permitted under the FLSA. The DOL provides a dedicated resource to help employers navigate this issue. Employers should also review applicable state laws on child labor.

How to Classify Workers

It's critical to correctly classify your workers under applicable federal and state laws. Misclassifying workers could limit their access to critical benefits and protections they are entitled to by law, such as minimum wage, overtime compensation, family and medical leave, and unemployment insurance. Misclassifying a worker can also leave you vulnerable to expensive fines and potential lawsuits. There are several considerations that can help you determine how a worker should be classified although classification may vary depending on the applicable law or enforcing agency. Factors may include:

  • Who has the right to control and direct what work is done and how it's done? Do you tell the person about their job responsibilities and instruct them on how to do it?
  • Who supplies the tools and equipment?
  • Is the individual responsible for paying their own payroll taxes?
  • Who has control over the pay involved? Do you pay for employee benefits such as vacation and/or sick pay, insurance, or a retirement fund?

For more information on how to classify workers, the DOL has a fact sheet on worker classification.

Employee Status under the FLSA - Exempt and nonexempt

After determining that your worker is an employee and not an independent contractor, you need to decide if that employee is considered exempt or nonexempt under the FLSA. All covered nonexempt employees must be paid at least the federal minimum wage for all hours worked and time and one-half their regular rate of pay for all hours worked over 40 in a workweek.

The FLSA provides exemption from both minimum wage and overtime pay for employees who meet one of the white collar exemptions: executive, administrative, professional, outside sales or certain computer employees. Generally, coverage under these exemptions is determined by employee duties as well as salary level and salary basis tests.

In September 2019, the U.S. Department of Labor (DOL) adopted the final overtime rule, expanding federal overtime regulations. This rule raised the minimum salary threshold for exemptions from overtime to $684 per week (equivalent to $35,568 per year for a full-time worker). Employers can use non-discretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level per year.

Misconceptions about FLSA

Employers may have many misconceptions about the actual requirements associated with the FLSA. In fact, there are a handful of employment practices that fall outside these basic standards and are determined by the employer, a collective bargaining agreement, or state law. These include:

  • Vacation, holiday, and sick pay
  • Premium pay for hours worked beyond what is required by the FLSA
  • Frequency of payment
  • Full-time versus part-time status
  • Maximum hours worked each day or week for employees 16 years of age or older
  • Job performance measurements
  • Discharge notices and reasons
  • Fringe benefits

Understanding the FLSA is an essential part of managing your business, since failing to comply can have serious and expensive consequences. Working with a knowledgeable labor and employment law attorney as well as an experienced HR compliance professional can help you effectively navigate the FLSA and other pertinent employment laws.


We can help you tackle business challenges like these Contact us today

* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

About Paychex

Paychex was founded over four decades ago to relieve the complexity of running a business and make our clients' lives easier, so they can focus on what matters most.

We provide: