Understanding the Fair Labor Standards Act
The Fair Labor Standards Act (FLSA) is the primary federal law governing minimum wage, overtime pay, recordkeeping, and child labor standards. Enacted in 1938, the FLSA affects more employees than any other labor law. For SHRM exam candidates, mastering the FLSA's complex provisions on exempt versus nonexempt classifications is particularly important.
Minimum Wage Requirements
The FLSA establishes a federal minimum wage that covered employers must pay to nonexempt employees. As of the most recent update, the federal minimum wage is $7.25 per hour, though many states and municipalities have enacted higher minimum wages. When state and federal minimum wage rates differ, employers must pay the higher rate.
The FLSA also allows for a lower minimum wage for tipped employees ($2.13 per hour), provided that tips bring total compensation to at least the regular minimum wage. If tips do not bring the employee to the minimum wage level, the employer must make up the difference.
Overtime Requirements
Under the FLSA, nonexempt employees must receive overtime pay at a rate of one and one-half times their regular rate of pay for all hours worked over 40 in a workweek. Key points about overtime include:
- The workweek is defined as a fixed, recurring period of 168 hours (seven consecutive 24-hour periods).
- Overtime is calculated on a workweek basis; hours cannot be averaged over multiple weeks (except for certain healthcare employees under the 8/80 rule).
- Compensatory time off in lieu of overtime pay is generally not permitted for private-sector employers.
- The regular rate of pay includes all remuneration, not just base hourly wages. This may include shift differentials, nondiscretionary bonuses, and commissions.
Exempt vs. Nonexempt Classifications
One of the most critical aspects of the FLSA for HR professionals is determining whether employees are exempt or nonexempt. Exempt employees are not entitled to overtime pay. To qualify for an exemption, an employee must generally meet three tests:
- Salary basis test: The employee must be paid a predetermined, fixed salary that is not subject to reduction based on the quality or quantity of work.
- Salary level test: The employee must earn at least the minimum salary threshold set by the Department of Labor.
- Duties test: The employee's primary duties must meet specific criteria for one of the recognized exemptions.
Common White-Collar Exemptions
The FLSA recognizes several primary exemptions for white-collar employees:
- Executive exemption: The employee's primary duty is managing the enterprise or a recognized department, they customarily direct the work of two or more full-time employees, and they have authority to hire or fire (or their recommendations carry particular weight).
- Administrative exemption: The employee's primary duty is office or non-manual work directly related to management or general business operations, and the employee exercises discretion and independent judgment on matters of significance.
- Professional exemption: The employee's primary duty requires advanced knowledge in a field of science or learning, customarily acquired through prolonged specialized instruction (learned professional), or the employee's primary duty requires invention, imagination, originality, or talent in a recognized creative field (creative professional).
- Computer employee exemption: The employee works as a computer systems analyst, programmer, software engineer, or similar role and performs specific duties related to computer systems or software.
- Outside sales exemption: The employee's primary duty is making sales or obtaining orders away from the employer's place of business.
Recordkeeping Requirements
Employers must maintain accurate records for each nonexempt employee, including full name, social security number, address, birth date (if under 19), sex, occupation, time and day the workweek begins, hours worked each day and total hours each workweek, basis of pay, regular hourly rate, daily or weekly straight-time earnings, total overtime compensation, total wages paid each pay period, and dates of payment and pay period covered.
SHRM Exam Tips
For the SHRM exam, focus on understanding the three-part test for exempt status, the specific duties tests for each exemption category, overtime calculation methods, and the distinction between the FLSA and state wage and hour laws. Remember that job titles alone do not determine exempt status; the actual job duties and compensation structure are what matter.