Originally enacted in 1938, the Fair Labor Standards Act has been amended many times, but it is still the main law affecting workers' pay. It is the federal statute that established protections for minimum wage, premium pay for overtime hours of nonsupervisory employees and protection of children who are working.

It does not regulate vacation, holiday, severance or sick pay, meals, premium pay for weekend or holiday work, shift differentials, pay raises or fringe benefits.

"The act encourages employers to hire more people versus having current employees work more hours," says Lari Braun, human resources manager at Leading Edge accounting firm Henry & Horne in Tempe, Ariz. "It also ensures that people are able to earn a decent wage."

Who is impacted by the FLSA?

"All employers who are engaged in interstate commerce or the production of goods for interstate commerce are subject to the FLSA," according to Tyler A. Ridgeway, an attorney and executive recruiter with Leading Edge accounting firm Kreischer Miller in Horsham, Pa. In this age of the Internet, that includes most employers, as well as:

• Businesses that are not engaged in interstate commerce but have at least two employees and do at least $500,000 in business per year
• Hospitals, government agencies and schools
• Construction enterprises, laundries and cleaners that were in business on March 31, 1990
• Retail enterprises with 1989 sales of at least $362,500 (and nonretail enterprises with sales of at least $250,000) that were in business on March 31, 1990

Interstate commerce is a very broad term, according to Braun. To understand just how broad, consider that employees who are engaged in interstate commerce include those who:

• Produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state
• Regularly make telephone calls to other states
• Handle records of interstate transactions
• Travel to other states as part of their job
• Do janitorial work in buildings where goods are produced for shipment outside the state

"You've got to understand the overall law and what it's about," says Braun. That includes understanding which of your employees are exempt from the FLSA. Upper-level executives also are exempt from the FLSA. Typically a salaried employee will be exempt if his or her primary duty consists of the management of the enterprise or of a customarily recognized department or division of the enterprise, and if that primary duty includes the customary and regular direction of two or more other employees.

CPAs are exempt because they are classified as professional employees. "Advanced knowledge in a field of learning normally acquired through a prolonged course of specialized instruction," says Braun.

Ridgeway advises employers to consider the following multi-prong test when determining whether or not employees are exempt.

• Are employees paid a salary? If not, employees are non-exempt and the test is complete. If yes, the test continues.
• Are they an executive, directing the work of others?
• Are they administrative, engaged in non-routine office or non-manual work?
• Are they professional, engaged in work requiring knowledge or an advanced degree?
• Are they a computer professional?

If you answered no to the last four questions, your employee is non-exempt.

The final test is the employee's salary level, according to Ridgeway. "The salary must be $155 per week or $8,060 per year," he says.

To be exempt, a position must pass these tests.

"Examples of exempt employees include lawyers, department heads, executive assistants, account executives, physicians, personnel directors and tax specialists. Non-exempt employees include clerks, bank tellers, secretaries, inspectors, trainees and bookkeepers," says Ridgeway.

Braun says that sometimes employers may try to classify non-exempt employees as exempt to avoid paying overtime. "You've got to look at job duties to make sure they are clearly defined and you are clearly compliant," she says.

The FLSA regulations are all about duties, not job titles. "It's important to document titles, expectations and work performance because if the U.S. Department of Labor comes in to investigate, they will look at duties and ask whether or not the employee really is exempt," she says.

Next Page: Other protections  //  1  2