Overcoming Compliance Challenges with the FLSA

In this episode of Healthcare Simplified, we are again joined by Sandy Krauer, a human resources consultant with Total Focus HR Solutions, an Allegeant company.

This is Part 2 of our 3 part series with Sandy. In this episode, Sandy gives us some important things to remember when trying to comply with FLSA regulations:

There is a federally-set minimum hourly wage that sets the National standard -- $7.25/hour was established in 2009 and hasn't changed since then
Each state can set its own minimum hourly rate -- it can be higher than the federally-set hourly rate or the same; just not lower than the federal standard
Within each state, Counties can establish their own minimum rates separate from the state or federal minimum wage.
Employees must be paid based on the established hourly rate and overtime premium rate unless the employee meets strict qualifications for exemption from the minimum rate and overtime provisions of the federal or state wage/hour laws.

What is the FLSA?

FLSA stands for the Fair Labor Standards Act, a federal law that has been around since 1938 and covers a wide range of standards; including minimum wage, overtime premium wage rate for hours worked over 40 in a workweek, recordkeeping standards, and child labor restrictions.

The FLSA applies to most private sector employers as well as state and local governments. The main purpose of this law was to establish minimum standards across the country regarding pay practices for all employees.

While FLSA doesn’t dictate how many hours per week an employee can be required to work, it does require that for any hours over 40 in a workweek an employee works must be paid at an overtime premium rate of 1 ½ times the employee’s regular rate of pay.

Are states allowed to create their own minimum wage?

While the federal law sets the baseline hourly wage rate that employers can pay their employees, States may establish their own minimum hourly wage (as long as it is the same or higher than the federal minimum).

What is the minimum hourly wage?

The federal standard is $7.25 an hour and hasn’t been changed since 2009. However, many states have changed their standard over the last couple of years.

In Maryland, the standard hourly wage was changed to $10.10 in 2018. But even this is not the only minimum wage rate in Maryland. Several Maryland Counties have established their own minimum hourly rate that differs from the state standard. For example, Prince George County has a minimum wage of $11.50 per hour. Montgomery County has an even more complicated minimum wage standard: $12 minimum for employers with 50 or less employees and a $12.25 minimum for employers with 51 or more employees.

MD also has the “Living Wage” rate that applies to private sector employees working on state and local government projects. With all of these different standards, it’s not surprising that employers can get confused. Sandy jokingly suggested using a flowchart to keep track of all the required wage rates just in Maryland.

Are there any exceptions to the minimum hourly wage requirement?

With any regulation there are going to be certain exceptions to the rule. In the case of FLSA, there are a few exceptions to the requirement to pay a minimum hourly rate and overtime premium rate – called FLSA exemptions. Sandy noted that these are clearly “exceptions to the rule” and, as such, it is a complicated matter to meet the qualification tests to be able to claim exemption status.

In order to be “exempted” from the minimum hourly wage and overtime premium rate provisions an employee must meet narrowly defined qualifications. They first must pass a Salary Test by being paid a set salary rate of at least $455 weekly. They must also pass a Duties test, specific to the type of exemption classification that applies to the employee’s specific job. All qualifications in both the salary test and duties test must be met in order to qualify for the Exemption classification.

The most common FLSA Exemption classifications are: Executive, Administrative, Professional, Outside Sales, and Computer.

Child labor laws

The FLSA also established guidelines pertaining to child labor. Employers are prohibited from hiring any child under the age of 14. There are also limitations on how many hours a child (14-16 years old) can work each day and how many hours they can work straight before having a break during a work day.

Also, it is important to note that there is an exception to the minimum federal wage rate for employees under the age of 20 years that employers are allowed to pay, as well as a lower hourly rate for interns.

Some challenges employers may encounter when trying to comply with FLSA or even State wage laws

One of the biggest mistakes employers make, it seems, is not seriously considering the expensive consequences of ignoring the wage and hour law requirements. The Dept. of Labor has increased its enforcement efforts over the last several years and reported that $304 million in wages were recovered for workers because of employer violations last year (2018).

Another common problem for employers is incorrectly calculating overtime pay. Overtime needs to be calculated based on the hours worked each workweek, not based on a 2-week pay period.

Another challenge that Sandy mentioned was when there are employees that work two separate jobs in one company and have two separate hourly wages because of that. When this happens, it can be hard for employers to which pay rate would apply for OT calculation – it is actually a melded rate that would apply.

The last challenge that was mentioned was the misclassification of employees as 1099 contractors rather than as an employee – this one causes tax withholding violations as well.

Do employees have any misconceptions about wage laws?

“Certainly employees can have as much confusion over these complicated laws as employers do” stated Sandy.

One big question that Sandy hears from employees is whether employers are allowed to require an employee to work overtime. “Employees are hopeful that there is a law preventing this” said Sandy. However, there is no law that prevents employers from requiring employees to work overtime. Federal and state wage laws leave it to the employer to set their work hours and only require that employers pay overtime pay for hours worked over 40 in a workweek.

Another misconception that employees have is that there is a law requiring all employers to pay for vacation time and holidays. While this is an internal policy that most employers have, this is not required by law. However, more and more states are enacting some form of paid sick leave, so this is changing somewhat.

Conclusion

The Fair Labor Standards Act covers minimum wage standards that are so complicated, you need a flowchart to track them. If you have any questions you’d like to ask Sandy, send us an email at webinfo@allegeant.net.

This post is based on a podcast interview with Sandy Krauer from Total Focus HR. To hear this episode, and many more like it, you can subscribe to Healthcare Simplified by clicking here.