The Fair Labor Standards Act (FLSA) is a federal law that governs wages, overtime pay, worker classification, and other worker protections. FLSA compliance is crucial for businesses, as violations can lead to civil and criminal penalties. This post covers common FLSA mistakes, the consequences of non-compliance, and best practices to help your business stay compliant.
Understanding FLSA Compliance Basics
The FLSA sets minimum standards for businesses regarding wages, overtime, and worker protections. Key requirements include:
- Minimum wage of $7.25 per hour
- Overtime pay at 1.5 times the hourly rate for over 40 hours a week
- Accurate recordkeeping
- Protection against retaliation
- Regulations on the employment of minors under 18
The Wage and Hour Division of the Department of Labor (DOL) enforces the FLSA and can conduct workplace inspections. The DOL is also authorized to file lawsuits against business owners when violations occur.
Common FLSA Mistakes and How to Avoid Them
Employee Misclassification: Exempt vs. Non-exempt
Employees must be accurately classified as exempt or non-exempt. Exempt employees, typically salaried and earning above a threshold set by the DOL, aren’t eligible for overtime. Starting January 1, 2025, this threshold will increase to $58,656 annually. Non-exempt employees, on the other hand, must receive overtime pay for any hours worked beyond 40 in a week.
Incorrect Overtime Calculations
Non-exempt employees are entitled to 1.5 times their regular pay rate for overtime hours. Without reliable time-tracking, overtime may not be accurately calculated, leading to underpayment and potential enforcement actions. Additionally, state and local rules may apply, requiring careful attention to payroll details.
Improper Recordkeeping
Employers must maintain records for each non-exempt employee, including name, Social Security number, hours worked, and wages earned. These records can be kept on paper or digitally but must meet FLSA retention requirements—two years for wage records and three years for payroll data.
Wage and Hour Errors
Improper wage calculations can also lead to FLSA violations. Paid time includes mandatory training, work-related travel, and on-site on-call presence. Improper deductions can result in penalties under wage and hour laws.
Misunderstanding Breaks and Meal Periods
Under the FLSA, breaks under 20 minutes are considered paid time. Meal breaks lasting 30 minutes or more can be unpaid unless the employee is required to remain on duty. Although the FLSA does not mandate breaks, many states have their own break requirements that employers must follow.
Consequences of Non-Compliance
FLSA violations can result in significant penalties. Each instance of minimum wage or overtime non-compliance carries a $1,000 fine, while each child labor law violation can lead to a $10,000 fine. Willful violations may result in $10,000 fines and prison sentences. Additionally, goods produced in violation of the FLSA cannot be shipped or sold across state lines.
In fiscal year 2023, the Wage and Hour Division at the DOL identified 955 child labor violations, leading to more than $8 million in fines. These cases typically involved minors working longer hours than permitted or performing age-restricted jobs.
Best Practices for Maintaining FLSA Compliance
To maintain compliance, businesses should regularly audit payroll processes and confirm employee classifications. If any discrepancies are found, correct them immediately on the employee’s next paycheck and provide an explanation.
Clear timekeeping policies and employee training on FLSA regulations are also essential. Consider using reliable timekeeping software to reduce errors and simplify tracking. Additionally, payroll software or partnering with a payroll service provider like Affiliated Payroll can help ensure continuous compliance.
How Affiliated Payroll Can Help with FLSA Compliance
Maintaining FLSA compliance requires precise payroll management, accurate employee classification, and diligent recordkeeping. Affiliated Payroll offers comprehensive payroll solutions that simplify compliance with both FLSA and Davis-Bacon Act requirements. Our services, including payroll ledger maintenance, timekeeping, tax management, and custom reporting, keep your business running smoothly and aligned with regulatory standards.
Partner with Affiliated Payroll—we’re here to support your business in achieving seamless FLSA compliance. Contact us today to schedule a consultation and protect your business from costly penalties.