10.2 FLSA Classification, Hours, and Overtime

The FLSA Framework HR Must Know

The Fair Labor Standards Act (FLSA) is the core federal wage-hour law. It sets the federal minimum wage ($7.25/hour since 2009), overtime, recordkeeping, and child-labor rules. For overtime, covered nonexempt employees must be paid at least 1.5× their regular rate for all hours worked over 40 in a workweek. The FLSA does not require daily overtime, premium pay for weekends or holidays, or paid breaks — those are policy or state-law matters, a frequent distractor on the exam.

The workweek is a fixed, recurring 168-hour (7-day) period; you cannot average hours across two weeks to avoid overtime. The regular rate includes nondiscretionary bonuses, shift differentials, and commissions — not just base pay — so a production bonus can retroactively raise the overtime owed.

Exempt vs. Nonexempt: Two Tests, Both Required

Exemption is a legal classification, not a reward for importance. The common white-collar (EAP) exemptions — Executive, Administrative, Professional — require passing two tests:

Title alone never decides the question. A "manager" who spends the day stocking shelves, or a salaried "coordinator" doing routine clerical work, likely fails the duties test and must be treated as nonexempt regardless of the salary. The classic PHR stem — "classify her exempt because she's salaried" — is wrong: salary is necessary but not sufficient.

Hours Worked and Timekeeping

Nonexempt time records must reflect all hours worked — work before clocking in, after clocking out, through unpaid meal periods, during required travel, or while answering required messages off-shift. A policy banning unauthorized overtime does not let the employer refuse to pay time actually worked; the suffer or permit standard governs. The PHR-correct sequence is: pay the hours, then address the approval-rule violation through coaching or discipline.

Worked Example

A nonexempt analyst earns $20/hour, works 45 hours, and earns a $100 nondiscretionary production bonus that week. The bonus is folded into the regular rate: ($20 × 45 + $100) = $1,000 straight-time ÷ 45 hours = $22.22 regular rate. The overtime premium owed is 5 hours × 0.5 × $22.22 = $55.55 on top of straight time. Ignoring the bonus would underpay overtime — exactly the error the exam probes.

FLSA errors scale fast because one role's classification or one manager's timekeeping habit can affect many employees. Correct the individual, then audit similar jobs, locations, and managers for the same defect.

Misclassification, Exposure, and Recordkeeping

Misclassification is one of the costliest wage-hour mistakes. When an employee is wrongly treated as exempt, the employer can owe back overtime for unpaid hours, and where the violation is willful the look-back period extends from two years to three years, often doubled by liquidated damages. Independent-contractor misclassification carries similar exposure plus tax and benefits liability. Because of this, HR re-audits classifications whenever duties change materially, after reorganizations, and whenever a job title is created or merged.

The FLSA also imposes recordkeeping duties for nonexempt employees. Employers must keep, for each nonexempt worker, identifying data, hours worked each day and each week, the regular hourly rate, straight-time and overtime earnings, additions to and deductions from pay, and the pay period and payment date. Basic payroll records are generally retained for three years, and supporting records used to compute wages (time cards, work schedules, wage-rate tables) for two years.

Common Exemption Categories and Distractors

Beyond the white-collar EAP exemptions, the exam may reference the outside sales exemption (no salary-level test, but the primary duty must be making sales away from the employer's place of business) and the computer employee exemption (which can be met by salary or by an hourly rate of at least $27.63). Watch for distractors that assume blue-collar workers or first responders can be made exempt by paying a salary — they generally cannot, regardless of pay. Likewise, paying a fixed salary to a nonexempt employee does not eliminate the overtime obligation; it only changes how the regular rate is computed.

The recurring lesson: classification follows the law and the duties, not the employer's preference, the pay method, or the title on the org chart. When a stem describes a salaried "assistant manager" who in practice spends almost all of her time performing the same nonexempt tasks as the crew, the defensible answer is to reclassify as nonexempt and pay the overtime owed, not to defend the label.