What Is the Fair Labor Standards Act?
The Fair Labor Standards Act (FLSA) of 1938 is a federal law that establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments. For HR professionals preparing for the SHRM-CP or SHRM-SCP exam, FLSA is a cornerstone topic in the compensation and compliance areas.
The FLSA is administered by the Wage and Hour Division (WHD) of the U.S. Department of Labor. It applies to enterprises engaged in interstate commerce with at least $500,000 in annual gross sales, as well as to hospitals, schools, and public agencies regardless of revenue.
Understanding FLSA classification rules and overtime calculations is essential for exam success and everyday HR practice.
Exempt vs. Nonexempt Classification
One of the most heavily tested FLSA topics on the SHRM exam is the distinction between exempt and nonexempt employees. Nonexempt employees are entitled to overtime pay; exempt employees are not.
To qualify for exemption under the most common "white collar" exemptions, 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 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 the criteria for one of the recognized exemption categories.
The primary exemption categories include:
- Executive: Manages the enterprise or a recognized department, directs the work of at least two full-time employees, and has hiring/firing authority or significant input.
- Administrative: Performs office or non-manual work directly related to management or general business operations and exercises independent judgment on significant matters.
- Professional: Performs work requiring advanced knowledge in a field of science or learning, or creative work requiring invention or imagination.
- Computer employee: Works as a systems analyst, programmer, or similar role and meets specific duties criteria.
- Outside sales: Makes sales or obtains orders away from the employer's place of business (no salary requirement for this category).
Overtime Calculations and the Workweek
Under the FLSA, nonexempt employees must receive overtime pay at a rate of 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. Key points to remember:
- The workweek is a fixed, recurring period of 168 hours (seven consecutive 24-hour periods). It does not have to coincide with a calendar week.
- Each workweek stands alone. Hours cannot be averaged across two or more weeks (except for certain hospital employees under the 8/80 rule).
- The "regular rate" includes the employee's hourly rate plus certain additional compensation such as nondiscretionary bonuses, shift differentials, and commissions.
- Comp time (compensatory time off in lieu of overtime pay) is generally not permitted in the private sector under the FLSA.
On the SHRM exam, you may be asked to calculate overtime or determine whether a particular payment must be included in the regular rate of pay. Practice these calculations to build confidence.
Recordkeeping and Enforcement
The FLSA requires employers to maintain certain records for each nonexempt employee, including hours worked each day, total hours worked each workweek, basis of pay, regular hourly rate, total overtime pay, and additions to or deductions from wages. These records must be kept for at least three years.
Enforcement of the FLSA can come through complaints to the Wage and Hour Division, which may investigate and recover back wages. Employees can also file private lawsuits to recover back pay, liquidated damages (an equal amount), and attorney's fees. Willful violations may be subject to criminal prosecution and fines.
HR professionals play a critical role in ensuring accurate classification and timekeeping. Misclassifying employees as exempt when they should be nonexempt is one of the most common and costly FLSA violations.
Start Practicing Today
FLSA topics appear regularly on the SHRM exam, which features 134 questions over 4 hours at Prometric or OnVUE. Questions often involve classification scenarios, overtime calculations, and recordkeeping requirements.
SHRMpractice.com provides realistic FLSA practice questions with detailed answer explanations. Start with a free diagnostic to pinpoint your knowledge gaps, then build a study plan that works. Sign up today and take the first step toward certification success.