Find out how FLSA compliance auditing can better your business.
The Fair Labor Standards Act (FLSA) is a federal law created to establish a minimum wage, regulate the number of hours worked each week, determine how overtime is awarded, protect children from unfair working conditions, and require a standard of recordkeeping.
If you fail to comply with FLSA regulations, you could be fined almost $2,000 per employee for minimum wage and overtime penalties. Child labor violations can result in even stiffer penalties per occurrence, so it makes sense to take the time to regularly self-audit.
To make this self-audit easier, this article contains links to some of the most valuable government resources to help you make sense of the FLSA.
Contractors and nonemployees
This is one of the trickier points for many small business owners. If your business uses a high percentage of independent consultants or contractors who actually function more as employees, you could be in trouble. Not sure what the difference is?
The Department of Labor (DOL) has a great infographic that breaks down the distinction between an employee and independent contractor. If you have a worker whom you're claiming as an independent contractor but who does not determine when and how they work, they're probably an employee. If there is any chance you could be in violation of claiming an employee as an independent contractor, you can gain clarity from the Wage and Hour Division of the DOL.
It's important to ensure that how your nonexempt employees record their time complies with FLSA. To see if your organization is following proper protocol, you should review when the DOL expects employees to be counting hours worked and how those hours should be tracked.
In general, if your employee is doing something specifically for you or is unable to do something else because they need to be available for you, it's likely that they need to count their time as hours worked.
The way in which those hours should be tracked is very regimented and requires employers to maintain the following records on all employees:
- Full name and Social Security number of employee
- Address with ZIP code
- Date of birth, if younger than 19
- Day of the week and time when workweek begins
- Number of hours worked daily
- Total hours worked per workweek
- The basis of employee wage (e.g., "$11 per hour," "$540 a week," "piecework")
- Normal hourly rate
- Weekly or daily total of straight-time earnings
- The total amount of overtime earnings for each workweek
- Any deductions from or additions to the employee's wages
- The total amount of wages paid per pay period
- The date of payment as well as the pay period for which the payment is being made
There are some positions which are exempt from overtime earnings. If you have employees who are classified as exempt from earning overtime, you need to review their responsibilities and compare them to FLSA regulations regularly to ensure the employee's status hasn't changed. You also need to have your payroll department verify they are only making allowable deductions from employees' paychecks.
The FLSA is the primary regulation that protects children from being exposed to unfair and dangerous working conditions. The federal government carefully regulates all aspects of how employers may employ individuals under the age of 18.
The types of jobs children can work, as well as the number of hours each week they can work, vary based on the child's age. As a general guideline, 14 is the minimum age for employment, and those under the age of 16 have strict limitations.
The DOL has extensive child labor resources available if you employ children under the age of 16 and want to ensure you are in compliance with FLSA regulations.
If you've passed your FLSA self-audit with flying colors, it's time to think about state law. Are you paying the minimum wage as dictated by your state government? You can check those numbers here, but remember, some cities have higher minimums than even their state government requires.
You can also use the DOL's self-evaluation tool. This is recommended if you think you might be out of compliance or want to check the finer points of the law.
If you feel secure that you are complying with current practices, great! State and federal laws change unpredictably, so take the time each year to ensure you are still in compliance or you could face stiff federal penalties.
On the other hand, if you aren't sure that you have addressed any of the above issues, it's time to do some follow-up work. Consult your legal counsel and make a point to identify and remedy any potential violations.