Wage and Hour Compliance: Avoiding Costly Mistakes
Understanding FLSA requirements for minimum wage, overtime, exempt vs. non-exempt classification, and record-keeping.
AEA Editorial Team
Fair Labor Standards Act Overview
The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record-keeping, and child labor standards. Violations are among the most common and costly employment law issues employers face.
Minimum Wage
The federal minimum wage is $7.25 per hour, but many states and localities have set higher rates. You must pay whichever is higher - federal, state, or local. Track changes in all jurisdictions where you have employees.
Overtime
Non-exempt employees must receive overtime pay at 1.5 times their regular rate for hours worked over 40 in a workweek. Common mistakes include:
- Failing to include all forms of compensation in the regular rate calculation
- Averaging hours over two or more weeks
- Providing comp time instead of overtime pay (generally not permitted for private employers)
- Not counting all hours worked, including time spent on smartphones or working remotely
Exempt vs. Non-Exempt Classification
Misclassification is one of the most expensive wage and hour errors. To be exempt from overtime, an employee must generally meet three tests:
- Salary Basis Test: Paid a predetermined, fixed salary not subject to reduction based on quality or quantity of work
- Salary Level Test: Paid at least the applicable threshold per week
- Duties Test: Primary duties must meet specific criteria for executive, administrative, professional, computer, or outside sales exemptions
Job titles alone do not determine exempt status. Focus on actual duties performed.
Record-Keeping
Employers must maintain accurate records for each non-exempt employee, including:
- Full name and identifying information
- Hours worked each day and total hours each workweek
- Regular hourly rate of pay
- Total overtime compensation for each workweek
- Additions to or deductions from wages
- Total wages paid each pay period
Practical Steps
- Audit all exempt classifications annually
- Review state and local wage laws quarterly
- Train managers on proper timekeeping expectations
- Establish clear policies for off-the-clock work
- Document all classification decisions with supporting analysis