2.2 FLSA Coverage, Minimum Wage, and Overtime

FLSA coverage as a payroll starting point

The Fair Labor Standards Act (FLSA) is the federal wage-hour law that sets minimum wage, overtime, recordkeeping, and youth employment standards for covered employment. On the FPC, the key is not to assume every wage rule is federal or that every employee is exempt. Ask three questions in order: Is the employer or employee covered? Is the employee nonexempt? What pay, hours, and rate rules apply for the workweek?

DOL describes two main coverage routes. Enterprise coverage generally applies to employees working for certain businesses or organizations with at least two employees and annual dollar volume of sales or business of at least $500,000, and it also includes hospitals, certain care institutions, schools, preschools, and government agencies. Individual coverage can apply even without enterprise coverage when an employee’s work regularly involves interstate commerce or producing goods for commerce. Payroll rarely decides coverage alone, but it must know when to escalate because coverage drives minimum wage, overtime, and records.

Minimum wage floor

For covered nonexempt employees, the federal minimum wage is $7.25 per hour. The FPC trap is thinking that this federal rate is always the payable rate. DOL states that when both federal and state minimum wage laws apply, the employee is entitled to the higher minimum wage. Many cities and counties also set local minimum wages. Payroll must therefore know the employee’s work location and applicable local rules before concluding a rate is compliant.

Workweek and overtime

DOL Fact Sheet #23 says covered nonexempt employees must receive overtime pay for hours worked over 40 in a workweek at not less than time and one-half their regular rates of pay unless specifically exempted. The workweek is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. It can start on any day and at any hour, and different groups may have different workweeks. What payroll cannot do is average hours over two or more workweeks to erase overtime.

Example: A nonexempt employee works 48 hours in week 1 and 32 hours in week 2 of a biweekly pay period. Total hours are 80, but federal overtime is still due for 8 hours in week 1. Payroll cannot say the employee “averaged 40” over the pay period. A biweekly payroll cycle does not change the FLSA workweek.

Hours worked

FLSA overtime depends on hours worked, not just scheduled hours. DOL Fact Sheet #22 explains that work not requested but suffered or permitted is compensable. If a supervisor knows an employee starts early to load equipment or keeps answering customer tickets after clocking out, payroll cannot ignore the time because the employee violated a policy. The employer may enforce discipline prospectively, but the hours already worked must be paid.

Hours-worked questions often include waiting time, on-call time, rest breaks, meals, training, and travel. Short rest periods of about 20 minutes or less are generally paid work time. Bona fide meal periods, typically 30 minutes or more, are not work time only if the employee is completely relieved from duty. Training time can be excluded only when it is outside normal hours, voluntary, not job related, and no other work is performed. Travel during the workday, such as job site to job site travel, is usually work time. Ordinary home-to-work commuting is not.

Payroll timing and records

DOL guidance also says overtime earned in a particular workweek normally must be paid on the regular payday for the pay period in which the wages were earned. That matters when supervisors submit late time corrections. Payroll should not wait until year-end if the error is known now; it should process the correction, tax it in the proper payroll, and keep the timekeeping and approval trail.

Accurate records are part of the wage-hour rule. A covered employer must be able to show daily hours, weekly hours, pay basis, straight-time earnings, overtime earnings, additions, deductions, total wages, payment date, and pay period covered for nonexempt workers.

Payroll example: correcting missed overtime

Assume a nonexempt employee earns $18 per hour and works 45 hours in a workweek. Straight-time pay for all hours is $810. The overtime premium is an additional half-time amount for the 5 overtime hours: $18 x 0.5 x 5 = $45. Total gross pay is $855. If the payroll system paid only 45 x $18, payroll owes the additional premium and must document the correction, tax withholding, and any revised reports if the error crossed a quarter or year-end.

Compliance traps

• Pay-period trap: overtime is weekly under federal law, even when payroll is biweekly or semimonthly.
• Approval trap: unauthorized overtime can still be compensable.
• Premium-pay trap: federal law does not require extra pay merely for Saturdays, Sundays, holidays, or regular days of rest.
• State-law trap: daily overtime, meal-period penalties, split-shift rules, or higher local minimum wages may apply in some jurisdictions.
• Record trap: if time records are incomplete, payroll may lack the evidence needed to defend the calculation.