The Fair Labor Standards Act: Understanding Minimum Wage, Overtime and Exempt vs. Non-Exempt
- 21 Jan 2014
Every small business owner will eventually hear these words: minimum wage, overtime, and exempt vs. non-exempt employees. They may have some idea what these terms mean but are likely uncertain how they apply to their business and employees. The purpose of this post is to provide an overview of these terms so that you are better able to evaluate whether your company is in compliance with the Fair Labor Standards Act (FLSA).
Minimum Wage and Overtime
The FLSA is the act that governs minimum wage and overtime laws. It requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at time and one-half (at the employee’s regular rate of pay) for all hours worked over 40 hours in a workweek.
There are two minimum wages that employers must be concerned about. There is a federal minimum wage and then most states have a state minimum wage. If the state minimum wage is higher than the federal minimum wage (as it is in about 20 states, Florida being one of them) the employer must pay their employees the state minimum wage to be in compliance. If the state minimum wage is lower than the federal minimum wage (as it is in 4 states – Arkansas, Georgia, Minnesota, and Wyoming) the employer must pay their employees the federal minimum wage. The remaining states either have minimum wages equal to the federal minimum wage, or do not have a state minimum wage.
Exempt v. Non-Exempt
As stated above, the FLSA requires that employees be paid overtime if they work more than 40 hours in a week. However, the overtime laws do not apply to all employees. This is where the terms “Exempt” and “Non-Exempt” come into play. An “Exempt Employee” is an employee exempt from the overtime laws of the FLSA while a “Non-Exempt” employee is not exempt from the overtime laws and must be paid time and a half for each hour worked after 40 hours.
So what makes someone Exempt vs. Non-Exempt? There are certain industries that are exempted outright but for most small businesses the key factors that determine whether an employee is exempt are: (1) if the employee is salaried; (2) the employee’s weekly pay; and (3) whether the employee is considered a blue or white collar worker. In most situations if an employee is paid hourly then the he or she is non-exempt.
For an employee to be exempt their weekly salary must be greater than $455 a week or $23,660 annually (as of January 01, 2014). This means if your business has an employee on salary and his or her weekly salary is less than $455, even though that employee is salaried that employee must be paid time and a half for each hour over 40 that the employee works. If the employee’s salary is greater than $455 a week then he or she is not automatically exempt; it then depends on the employee’s job function. Typically if the employee is engaged as a “white-collar worker” (i.e. professional, executive, or administrative functions) the employee will be exempt. By comparison, if the employee is a “blue-collar worker” (performing manual labor) the employee will not be exempt regardless of the employee’s salary. Further, there are also exemptions for full time sales staff.
The entire FLSA cannot possibly be explained in just a few short paragraphs. The purpose of this post was to give small business owners an understanding of what these laws touch upon. You have to do an internal analysis and apply the laws to your specific circumstances to know how to comply.
Hunter Business Law is here to help you and your small business with any of your business needs including an audit of your human resources compliance.