FAQs: Wage and Hour Laws

Small business owners may sometimes wonder who handles all the rules about paying workers. It should be easy enough. An employee works a certain number of hours, and the employer pays them at their regular rate of pay. Simple.

Unfortunately, because some dishonest employers have tried to cheat their workers, the U.S. Department of Labor (DOL) has to get involved. The Wage and Hour Division of the DOL enforces federal laws that regulate how employers pay their workers and how many hours they can work in a pay period.

Below are answers to frequently asked questions about these laws and related state laws affecting how employers must pay their workers.

• What is the Fair Labor Standards Act?
• What employers fall under the Fair Labor Standards Act?
• What are exempt and non-exempt employees?
• Do employers have to pay for breaks and meal periods?
• Are tipped employees covered by FLSA?
• What is "tip pooling"?
• Can employers give time off instead of paying overtime?
• Do employers need to keep records on employee hours and wages?
• Do employers have to pay employees for travel time?
• Get legal advice

What is the Fair Labor Standards Act?

The Fair Labor Standards Act (FLSA) sets workplace wages and hours. It establishes an hourly minimum wage. It regulates overtime pay, record-keeping, and youth employment. The FLSA applies to most private employment and federal, state, and local governments. Under the FLSA:

• The federal minimum wage is $7.25 per hour. All non-exempt employees not otherwise covered by a contract or collective bargaining agreement must get this minimum wage.
• Employees may not work more than 40 hours in any work week without overtime pay. Employers must pay overtime hours at one and one-half times the employee's hourly rate.
• The FLSA does not force employers to offer vacation time, sick leave, or regular pay raises. State laws may demand such employee benefits.

The FLSA includes wait time, when a worker is on duty but not actively working, some types of travel and education time, and on-call periods if the employee must be available in the definition of "work time."

What employers fall under the Fair Labor Standards Act?

The FLSA applies to almost all employers in the United States. Wage and hour laws apply to any employer, regardless of number of employees, who:

• Earns $500,000 or more in annual gross sales
• Engages in interstate commerce
• Produces goods for interstate commerce

Schools, hospitals, and public agencies are all covered by FLSA. The FLSA covers domestic service workers (housekeepers, chauffeurs, nannies) if their cash wages were greater than $1,700 from one employer in the previous year.

Some employees are exempt from FLSA requirements ("exempt employees"), but very few businesses are.

What are exempt and non-exempt employees?

Non-exempt employees are full-time and part-time workers who receive an hourly wage. The FLSA ensures regular paydays and overtime pay and regulates hours of work. For this reason, it doesn't affect employees who don't get paid by the hour.

Exempt employees are generally "white collar" or executive positions and earn more than $684 weekly. Compensation and job duties must determine whether a worker is exempt or non-exempt.

Exempt employees include:

• Executives
• Administrative workers
• Academic professionals ("learned" or "creative" professionals)
• Computer employees
• Highly compensated employees whose annual compensation is above $107,432
• Independent contractors

A salaried employee must be a "bona fide" executive to be exempt from FLSA protections. Blue-collar workers earning more than the statutory amount are still considered non-exempt.

Do employers have to pay for breaks and meal periods?

There are no federal requirements for paid breaks or meal periods. If the worker is under the employer's control during the break period, they are working, not taking a break.

For instance, if an employee chooses to eat lunch at their desk, they may do so. If the employer requires them to eat at their desk so they can answer phone calls, it is not a lunch break, and the employer must pay them.

Some states have mandatory paid breaks and meal periods. Seven states now require paid rest periods for employees, with various exceptions. Twenty states and Puerto Rico have paid meal period requirements. Thirty-five states have separate regulations covering breaks for working minors.

Are tipped employees covered by FLSA?

FLSA requires employers to pay all non-exempt employees at the minimum wage rate. But, labor laws allow them to pay tipped employees at less than minimum wage under certain conditions.

• Employees must get at least $30 a month in tips
• Employees must get at least $2.13 an hour in direct wages
• Employees must know the pay rate in advance
• Tips and direct wages must equal the hourly minimum wage. The employer must pay any difference.

Several states, including Alaska, California, and Colorado, have eliminated the tip credit. Employers must pay all employees the minimum wage, and workers may keep all tips and gratuities. These laws are changing rapidly throughout the states, and employers should consult an employment attorney about the status in 2024.

What is 'tip pooling'?

In many businesses, workers place their tips in a general fund or pool and split among all workers at the end of the night. Bartenders may split their tips with the barbacks, servers, and other workers. Tip pooling is voluntary, and owners may not force tip pooling. Service charges and mandatory surcharges are not included in the employee's tips.

The DOL recently updated its tip regulation guidance. Employers should confirm their state's laws on tipping and tip pools when paying their employee's wages.

Can employers give time off instead of paying overtime?

Private employers may not give non-exempt workers comp time (compensatory time) instead of overtime pay. Non-exempt workers must get paid for all hours worked in a 40-hour workweek. But, employers and employees may agree to adjust the workers' hours so that the total time worked does not exceed 40 hours.

For instance, if an employee works 10 hours one day to finish a project, the employer may allow them to leave early the following day to keep them at 40 hours for the week.

Government employees and exempt employees may take comp time if all parties agree. Some states have different comp time laws that allow non-exempt workers to have comp time.

But, the DOL may enforce stricter federal rules in case of violations. Check with an attorney before making any comp time policies for your workers.

Do employers need to keep records on employee hours and wages?

The DOL requires all covered employers to keep accurate records on all non-exempt employees. There is no specific format or form for the records.

Owners must keep these records for two years. They must include identifying information about the employee and an accurate record of their hours and wages. The records must be available for inspection by the DOL upon request.

Do employers have to pay employees for travel time?

Employers do not have to pay employees for the time spent commuting to and from the workplace. This includes when the employee drives a company vehicle home after work. But, if driving is part of the job, the employer must pay for drive time at the employee's regular pay. This includes:

• Driving from a primary job location to a secondary location
• Sales jobs where an employee must visit multiple sites
• Some states require employers to pay travel time for workers called in to cover shifts on an emergency basis

Get Legal Advice

Interpreting the FLSA needs a legal translator. State wage and hour laws change yearly, affecting businesses more than federal laws. Employers and employees with questions should consult an employment law attorney for answers.