Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) is the US federal law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards. The Department of Labor states that the FLSA “establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.” For a US company paying workers at home or abroad, the FLSA is the federal wage-and-hour floor, and its first question is always the same: is this person an employee or an independent contractor? The full text and DOL guidance sit on the Wages and the Fair Labor Standards Act page.

The Four Standards

The FLSA sets four distinct standards.

1. Minimum wage. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour, effective July 24, 2009. States and localities may set higher minimums, and the higher rate controls.
2. Overtime pay. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek for covered nonexempt employees.
3. Recordkeeping. Employers must keep employee time and pay records and display the official FLSA poster. Payroll records must be preserved for at least three years.
4. Youth employment standards. The FLSA restricts the hours and types of work for minors to protect their schooling and safety, and permits a youth minimum wage of not less than $4.25 an hour for employees under 20 during their first 90 consecutive calendar days of employment.

Coverage Turns on Classification

The FLSA protects employees. It does not reach genuine independent contractors. That single line is why classification matters so much. If a hiring entity treats a worker as a contractor but the worker is an employee under the law, the entity has not escaped the FLSA. It has simply failed to pay minimum wage and overtime that were owed.

The Department of Labor decides employee status under the economic reality test, set out in 29 CFR Part 795. The test looks at the economic substance of the relationship rather than the label on the contract. A finding of employee status pulls the worker back under the FLSA, with exposure for unpaid minimum wage, unpaid overtime, and, under the statute, liquidated damages equal to the unpaid wages plus attorney’s fees in private suits. That is the link between the FLSA and worker misclassification.

Exempt and Non-Exempt

Even among employees, the FLSA splits the workforce into two groups. Non-exempt employees are entitled to minimum wage and overtime. Exempt employees, who meet a salary basis and a duties test, are not entitled to overtime. The exempt vs non-exempt distinction decides who must be paid time-and-a-half, and getting it wrong is a separate and common source of FLSA liability.

Why It Matters for US Companies

The FLSA is enforced by the Department of Labor and by private plaintiffs, who can bring collective actions for unpaid wages. The most expensive mistakes are classification mistakes: calling a worker a contractor when the economic reality test says employee, or calling an employee exempt when the duties test says non-exempt. A US company paying contractors should document the classification analysis at the start of each engagement so the file holds up if the DOL reviews it.

How Omnivoo Helps

Omnivoo Contract Management captures the classification record at the start of each US contractor engagement and maps the relationship against the DOL economic reality factors, so the wage-and-hour analysis is documented before any payment is made.