FLSA Guide for HR: Mastering Wage and Hour Compliance

Enterprise coverage applies to businesses with annual gross sales of at least $500,000 or that operate hospitals, schools, or government agencies. But even smaller businesses are covered if employees engage in interstate commerce, which includes using the internet, phones, or mail for business purposes. In practice, this means FLSA covers almost every employer.

Even if the enterprise isn't covered, individual employees engaged in interstate commerce are protected. This includes anyone who handles goods that crossed state lines, communicates with out-of-state parties, or travels interstate for work. Individual coverage casts a wide net.

State wage and hour laws often provide greater protections than FLSA, and when state law is stricter, it applies. California, for example, requires daily overtime beyond 8 hours per day, while FLSA only requires weekly overtime beyond 40 hours. Always apply whichever standard is more favorable to the employee.

Important: This guide provides an educational overview of FLSA requirements for HR professionals. It isn't legal advice. Wage and hour law involves complex fact-specific analysis that varies by jurisdiction, and errors carry significant financial penalties. Always consult employment counsel for classification decisions, overtime calculations, and compliance questions specific to your organization.

To be exempt from overtime, employees must meet BOTH a salary threshold AND a duties test. Meeting one without the other means the employee is non-exempt and entitled to overtime. Most misclassification litigation involves employees who meet the salary threshold but fail the duties tests.

The federal minimum salary for exemption was set at $844/week ($43,888/year) as of July 1, 2024, with an increase to $1,128/week ($58,656/year) planned for January 1, 2025. Many states set higher thresholds. California requires $66,560 as of 2024. Always apply whichever threshold is higher in your state.

The executive exemption requires that the employee's primary duty is managing the enterprise or a recognized department, they customarily direct the work of two or more full-time employees, and they have authority to hire or fire or their recommendations carry particular weight. Title alone doesn't satisfy this test. They must actually manage.

The administrative exemption requires office or non-manual work directly related to management or general business operations, plus the exercise of discretion and independent judgment on significant matters. This is the most frequently litigated exemption because 'discretion and independent judgment' is interpreted differently by every court.

The professional exemption has two paths. Learned professionals must have advanced knowledge in a field customarily acquired through prolonged specialized instruction (think: lawyers, doctors, engineers). Creative professionals must perform work requiring invention, imagination, originality, or talent in a recognized creative field.

The computer employee exemption covers systems analysts, programmers, and software engineers whose primary duty involves applying systems analysis techniques, designing or developing computer systems or programs, or a combination of these duties. Uniquely, this exemption can be satisfied by paying an hourly rate of $27.63 or more instead of the salary threshold.

Overtime is 1.5 times the 'regular rate,' not just the base hourly rate. The regular rate includes base pay, non-discretionary bonuses, commissions, shift differentials, piece rate earnings, and on-call pay. It excludes discretionary bonuses, gifts, paid time off, and expense reimbursements. Getting the regular rate wrong is one of the most common calculation errors.

FLSA overtime triggers at 40 hours per workweek. A workweek is 7 consecutive 24-hour periods (168 hours) and can begin on any day at any hour. Once established, the workweek can only be changed permanently, not temporarily to avoid overtime. Hours can't be averaged across workweeks.

The fluctuating workweek method applies when hours vary week to week and the employee receives a fixed salary regardless of hours. The regular rate equals salary divided by hours worked, and the overtime premium is 0.5x rather than 1.5x since the salary already compensates straight time. Specific requirements must be met, so consult counsel before using this method.

Private employers can't offer comp time in lieu of overtime pay. Public employers may under specific conditions. Informal 'time off later' arrangements don't satisfy FLSA because overtime must be paid in the pay period when earned. Don't let well-meaning managers create liability by offering comp time as a flexibility tool.

The 'suffered or permitted to work' standard means that if you know or should know an employee is working, those hours count, even if the work wasn't requested or authorized. An employee who voluntarily works through lunch or takes work home creates compensable hours if you knew or should have known.

Pre-shift and post-shift activities often create compensable time. Donning and doffing required equipment may be compensable. Security screenings may be compensable depending on jurisdiction. Booting up computers is compensable. Walking time after changing into required gear may count as well.

Meal breaks of 30 minutes or more where the employee is completely relieved of duties aren't compensable. But if employees must remain at their workstation or be available for calls, it's compensable work time. Short rest breaks of 5-20 minutes are compensable as hours worked.

Travel time rules are nuanced. Normal commuting isn't compensable. Travel during the workday between job sites is compensable. Travel to a different city for a one-day assignment is compensable minus the normal commute time. Overnight travel gets more complex since work time during travel is compensable but personal time isn't.

Training time is compensable unless ALL four conditions are met: it occurs outside regular hours, attendance is truly voluntary, the training isn't directly job-related, and no productive work is performed during the training. Mandatory training is always compensable regardless of when it occurs.

For non-exempt employees, you must maintain: employee name, address, occupation, sex, and birth date (if under 19). The time and day the workweek begins. Hours worked each day and total hours each week. The regular rate of pay. Total overtime earnings. Total wages paid. And the date of payment and pay period covered.

Retention periods are 3 years for payroll records, collective bargaining agreements, and sales/purchase records. Time cards, piece work tickets, wage rate tables, and work schedules must be retained for 2 years. These are minimums, and many employers retain records longer as a precaution.

No specific form is required, but records must be accurate and available for inspection. Most employers use HRIS systems or payroll software with integrated time tracking to maintain compliant records.

Time records aren't required for exempt employees, but you must maintain records of the basis on which wages are paid including salary amount and pay period. Some employers track exempt hours for project costing or to verify that exemption status remains appropriate.

Misclassification is the most common and most costly FLSA violation. Treating employees as exempt when they don't meet duties tests or misclassifying employees as independent contractors can result in class actions covering years of back pay for dozens or hundreds of affected workers.

Off-the-clock work is pervasive: requiring or permitting work before clocking in or after clocking out, work performed at home, automatic meal break deductions when employees actually work through lunch, and smartphone email or calls outside work hours. Each instance creates compensable time that adds up.

Improper salary deductions can destroy exempt status. Deductions from exempt employees' salary that violate the salary basis test can convert them to non-exempt for the entire period. Deductions from non-exempt pay that reduce wages below minimum wage are also violations, as are unauthorized deductions for uniforms, tools, or cash register shortages.

Penalties are severe: back wages plus liquidated damages (effectively double damages) for willful violations. The statute of limitations is 2 years, extending to 3 years for willful violations. Criminal penalties include fines up to $10,000 and imprisonment. State penalties often apply on top of federal ones.