FLSA Compliance Guide for Employers

The Fair Labor Standards Act (FLSA) is the foundational federal labor law in the United States, establishing minimum wage, overtime pay, recordkeeping, and child labor standards for employees in the private sector and in federal, state, and local governments. Enacted in 1938, the FLSA is enforced by the Wage and Hour Division (WHD) of the U.S. Department of Labor.

For small and mid-sized businesses, FLSA compliance is not optional — it is one of the most commonly violated employment laws, and penalties can be severe. Misclassifying employees as exempt, failing to pay overtime, or not maintaining accurate time records are among the most frequent violations that lead to lawsuits and DOL investigations.

This guide covers the key provisions of the FLSA that every employer needs to understand, including the current federal minimum wage, overtime calculation rules, the exempt vs. non-exempt classification tests, and recordkeeping requirements. Whether you have 5 employees or 500, FLSA compliance starts with understanding these fundamentals.

The current federal minimum wage under the FLSA is $7.25 per hour, effective since July 24, 2009. This is the absolute floor — employers must pay at least this rate to all covered, non-exempt employees.

However, many states and municipalities have enacted higher minimum wages. When both federal and state/local minimum wage laws apply, the employer must pay the higher rate. For example, as of 2026, California's minimum wage is $16.50/hour, New York City's is $16.00/hour, and Washington state's is $16.66/hour.

Special minimum wage provisions exist for:

• Tipped employees: Employers may pay a direct cash wage of $2.13/hour, provided tips bring total compensation to at least $7.25/hour (tip credit provision)
• Youth workers: Workers under 20 may be paid $4.25/hour during their first 90 consecutive calendar days of employment
• Workers with disabilities: Under Section 14(c), employers may obtain certificates to pay sub-minimum wages, though this provision is increasingly restricted

Employers must display the official DOL minimum wage poster (WHD Publication 1088) in a conspicuous workplace location.

The FLSA requires employers to pay covered, non-exempt employees overtime at a rate of 1.5 times their regular rate of pay for all hours worked over 40 in a workweek. The workweek is defined as a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods — but it does not have to coincide with the calendar week.

Key overtime rules employers must follow:

• Weekly calculation only: Overtime is calculated on a workweek basis. You cannot average hours over two or more weeks (except for certain hospital/nursing home employees under Section 7(j))
• Regular rate: The regular rate includes all remuneration — base pay, non-discretionary bonuses, commissions, and shift differentials. It excludes discretionary bonuses, gifts, and expense reimbursements
• No comp time in private sector: Private employers cannot offer compensatory time off in lieu of overtime pay (only public sector employers can)
• No waiver: Employees cannot waive their right to overtime pay, even voluntarily

Example calculation: An employee earning $20/hour who works 48 hours in a workweek is owed: 40 hours × $20 = $800 (straight time) + 8 hours × $30 = $240 (overtime) = $1,040 total.

One of the most critical — and most commonly mishandled — FLSA compliance issues is properly classifying employees as exempt or non-exempt. Exempt employees are not entitled to overtime pay; non-exempt employees are.

To qualify as exempt, an employee must generally meet all three tests:

1. Salary basis test: The employee must be paid a predetermined, fixed salary that is not subject to reduction based on quality or quantity of work
2. Salary level test: The salary must meet the minimum threshold. As of the 2024 DOL rule, the standard salary threshold is $844 per week ($43,888 annually), with increases scheduled
3. Duties test: The employee's primary duties must qualify under one of the recognized exemption categories

The main exemption categories are:

• Executive: Manages the enterprise or a department, directs the work of two or more employees, has authority to hire/fire
• Administrative: Performs office or non-manual work directly related to management or general business operations, exercises discretion and independent judgment
• Professional: Work requiring advanced knowledge in a field of science or learning, or creative work requiring invention/imagination
• Computer employee: Computer systems analysts, programmers, software engineers (can also meet a $27.63/hour rate test)
• Outside sales: Primary duty is making sales or obtaining orders away from the employer's place of business (no salary requirement)

Misclassification — treating a non-exempt employee as exempt — exposes the employer to back pay liability for unpaid overtime, liquidated damages, and attorney fees.

The FLSA requires employers to maintain certain records for each non-exempt employee. While the law does not prescribe a specific format, the following information must be kept accurately:

• Employee's full name and Social Security number
• Address, including zip code
• Birth date (if under 19)
• Sex and occupation
• Time and day of week when the employee's workweek begins
• Hours worked each day and total hours worked each workweek
• Basis on which the employee's wages are paid (hourly, weekly, piece rate, etc.)
• Regular hourly pay rate
• Total daily or weekly straight-time earnings
• Total overtime earnings for the workweek
• All additions to or deductions from the employee's wages
• Total wages paid each pay period
• Date of payment and the pay period covered

Retention requirements: Payroll records must be kept for at least 3 years. Supplementary records (wage rate tables, work schedules, time cards) must be retained for at least 2 years. Records must be available for inspection by DOL representatives.

Using an HR system like SnapHRM to track time and attendance automatically generates compliant records and eliminates the risk of incomplete or inaccurate manual recordkeeping.

The FLSA's child labor provisions are designed to protect the educational opportunities and well-being of minors. The rules vary by age group:

• Under 14: Generally prohibited from employment, with limited exceptions (newspaper delivery, acting, family business in non-hazardous work)
• Ages 14-15: May work in certain jobs outside school hours, with restrictions: no more than 3 hours on a school day, 18 hours in a school week, 8 hours on a non-school day, 40 hours in a non-school week. Work must occur between 7 a.m. and 7 p.m. (extended to 9 p.m. June 1 through Labor Day)
• Ages 16-17: May work unlimited hours in any non-hazardous occupation
• 18 and older: No FLSA child labor restrictions

The DOL maintains a list of Hazardous Occupations Orders (HOs) prohibiting minors under 18 from working in particularly dangerous jobs, including mining, operating power-driven machinery, roofing, and excavation.

Employers who violate child labor provisions face civil monetary penalties of up to $15,138 per violation, and penalties for violations causing death or serious injury can reach $68,801.