Revising the Fair Labor Standards Act for the 21st Century The Fair Labor Standards Act (FLSA) is an important piece of federal legislation that governs wages, hours and other aspects of employee working conditions. The act regulates various aspects of the employer/employee relationship, including the minimum wage, overtime protections, youth labor standards, and other matters.
In the spring of 2024, the Department of Labor (DOL) issued two final rules that may create significant changes in the application of the FLSA. In March of 2024, the DOL provided much-needed clarity to the national debate on employee classification with a final rule rescinding the 2021 rules defining employees and independent contractors and restoring a multi-factor totality of the circumstances test.1 Then, in April of 2024, the DOL issued a final rule expanding the scope of overtime protections by increasing the salary amount for non-exempt employees.2
Continue reading to find out more.
History of the Fair Labor Standards Act
The Fair Labor Standards Act was passed in 1938 as part of the New Deal. The New Deal was a legal response to the Great Depression, a global economic downturn characterized by uncertainty and high unemployment rates. In the United States, wide-scale bank failures decimated savings and many individuals lost farms and homes. Individuals faced dire economic conditions and approximately 25% of workers were unemployed.
Though the road to implementing New Deal legislation was not smooth, its passage represents an important moment in U.S. Constitutional history. In response to the Great Depression, many states passed state minimum wage acts for women and minor children to create a floor below which these workers could not fall. These acts were challenged by businesses as a restraint on trade and freedom of contract during the Lochner Era. The National Industrial Recovery Act was passed in 1933, creating the National Recovery Administration. Within a few years of its passage, the Supreme Court overturned the law as unconstitutional in 1935.
In 1937, the Supreme Court, threatened with a scheme to pack the Court by President Franklin D. Roosevelt’s administration, pulled back on its commitment to the Lochner Era. In West Coast Hotel Co. v. Parrish,3 the Supreme Court determined it was constitutionally permissible to regulate the workplace, even if such regulations limited the right to contract. In response, the federal government and many states passed laws regulating work, health, safety, morals and general welfare.
The FLSA is a federal statute that provides covered employees with numerous protections. Employees covered under the act must be paid the minimum wage. Employees who are not exempt under the FLSA also have a right to overtime pay of one-half times the regular pay rate for working more than 40 hours in a week.
Under the Equal Pay Act of 1963, the FLSA prohibits employers from paying different wages to men and women on the basis of sex.4 The FLSA regulates pay frequency, requires employers to maintain records and requires workplace disclosures in the form of posters that are viewable by workers. The FLSA also limits employment for children under the age of 14 outside of the agricultural context, limits the number of hours youth under the age of 16 may work and prohibits employing minors under 18 in hazardous contexts.5
The FLSA also makes provisions concerning employees who have given birth recently and who need to express milk for a child in the workplace. Under the FLSA, as amended by the PUMP (Providing Urgent Maternal Protections) Act, employers must provide reasonable break time in a private place for parents to express breast milk for the first year after the birth of a child.6
Coverage Under the Fair Labor Standards Act
The Fair Labor Standards Act covers most employees and businesses in the U.S. There are 143 million workers covered under the FLSA.7 The FLSA also prohibits retaliation against employees who attempt to exercise their rights under the act. To determine coverage under the FLSA, courts look to Enterprise Coverage or Individual Coverage.
Enterprise Coverage Under the FLSA
Employers with more than two employees are covered if they work for certain kinds of businesses or enterprises. These include businesses that have annual sales or business done of at least $500,000. The FLSA also covers businesses that provide medical care or nursing care, hospitals, schools and preschools, and government agencies. There are limits to enterprise coverage. For example, a company employing only individuals from one family is not covered by the FLSA, even if it does more than $500,000 in annual sales or business.
Individual Coverage Under the FLSA: Interstate Commerce and Beyond
The FLSA also covers employers that buy, sell, obtain or trade goods between states (i.e., if they engage in interstate commerce). Courts have interpreted this provision in favor of coverage so that even businesses that are mostly locally based but buy or sell materials from out of state are covered by the Act. It also covers domestic service workers like housekeepers, cooks and full-time babysitters. There are exceptions to this broad coverage for individuals. The FLSA does not cover casual babysitters, seasonal employees, trainees, volunteers or interns.
Employees v. Independent Contractors Under the FLSA
There are many workers that the FLSA does not cover, including independent contractors. Only individuals defined as employees are covered under the act. But who counts as an employee? In March of 2024, the Department of Labor issued a final rule clarifying how to analyze which workers are employees and which are independent contractors.
The DOL’s new rule rescinded the more employer-friendly 2021 employee classification rule, prioritizing the opportunity for profit and loss as a key factor for determining whether a worker is an employee or independent contractor. The DOL’s new rule replaced the 2021 rule with a multi-factor economic realities test that considers the relationship in reference to the totality of the circumstances. The new rule ensures that workers who are economically dependent on their employer are classified as employees under the FLSA. Workers who work independently and are not economically dependent upon a single employer would be more likely to be independent contractors, while those who are dependent upon an employer for work would be more likely to be classified as employees. This change aimed to bring the DOL’s definition of employees and independent contractors more in line with judicial precedent.
The new rule uses a “totality-of-the-circumstances” analysis that considers six factors, with no single factor carrying predetermined weight:
- The worker’s opportunity for profit or loss
- Investments by the parties
- The permanence of the work relationship
- The nature and degree of control over the work
- Whether the work is an integral part of the employer’s business
- The worker’s skill and initiative
The final rule took effect March 11, 2024.
Overtime Protection: Increasing the Salary Threshold Amount for Exempt Employees
The FLSA also requires that employees who are not exempt from the act (non-exempt) be paid overtime pay of time-and-a-half if they work more than 40 hours. Though the Fair Labor Standards Act does not put a ceiling on the number of hours an employee can work, it requires non-exempt employees covered by the Act must be paid overtime wages for all hours worked beyond 40 hours a week.
Some employees are exempt from overtime protections. Exempt employees do not need to be paid overtime wages for hours worked over 40 hours a week. For an employee to be exempt from overtime protections under the FLSA, they must either be part of a group of individuals explicitly designated as exempt under the statute or regulatory guidance OR they must be defined as exempt under the FLSA.
There are some kinds of employees that are exempt under the act because there is a statutory or regulatory exemption that renders them exempt from overtime protections. For example, employees for seasonal amusement or recreation businesses8 and salesmen, partsmen, and mechanics employed by automobile dealerships are exempt from overtime protections under the FLSA.9 Farmworkers on small farms are exempt from minimum wage and overtime protections in the FLSA.10
In most circumstances, exempt employees must meet three tests: a duties test, a salary basis test, and a salary amount test.
Duties Test: Defining who Counts as Exempt
Under the duties test, some kinds of work done by some kinds of employees who undertake specific duties are considered exempt from overtime protections. This is based on the kind of work they do and whether they meet the salary basis and salary threshold amount. In part, the FLSA’s overtime protections were designed to ensure that workers in blue-collar professions without managerial authority would be guaranteed time-and-a-half if they worked for more than 40 hours a week.11 Exempt employees who do certain kinds of work, particularly white-collar managerial work, who are paid a particular amount on a salary basis (as opposed to hourly) may be considered exempt from overtime protections. Exempt employees include:
- Executive employees: Those who are primarily engaged in management and who have the authority to hire or fire other employees who meet the salary amount test and salary basis test
- Administrative Employees: Those who exercise independent judgment in the performance of non-manual work in an office related to business operations who meet the salary amount test and salary basis test
- Professional employees: Those employed in a bona fide professional capacity and whose work requires either knowledge and advanced education or creativity, originality or talent. There are two kinds of professional employees—learned professionals and creative professionals
Under the FLSA, for example, practicing doctors or lawyers who hold a valid professional license and are engaged in the practice of medicine or law are employees employed in a bona fide capacity.12 Medical interns or residents, whether licensed or not, are also exempt from overtime protections. This exemption also includes teachers and instructors.12
The three exemptions to overtime protections, the executive, administrative and professional, are often called the “EAP exemption.”
Two other types of employees qualify as exempt on the basis of their duties:
- Computer professionals: Those employed as computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field who are primarily responsible for software, design, development, programming, testing and creating computer programs and systems. Individuals involved in manufacturing or computer hardware repair are not included in this exemption13
- Outside salespersons: Individuals who primarily engage in sales, obtaining contracts, providing goods for consideration paid by customers. They are customarily engaged in working offsite from the employer’s place of business14
Salary Basis Test
To qualify as an exempt employee, a worker must be paid on a salary basis. Even if an EAP-exempt employee meets the duties test, if they are paid hourly and do not receive their full salary for a week regardless of the days or hours worked, they are not paid on a salary basis. It is important to know that the salary basis test does not apply to outside salesmen, teachers or those practicing law or medicine. Computer employees need not be paid on a salary basis and may be paid on a salary basis of at least $684 per week or an hourly basis of at least $27.63 per hour. Commission-based salespeople also need not be paid on a salary basis.
The New Salary Amount Threshold: Salary Amount Test
Unless classified as a computer professional or an outside salesperson, employees classified as exempt under the FLSA must meet the duties test, the salary basis test and the salary amount test.
The Department of Labor recently issued changes to the salary amount test that will have an impact on which employees must be paid overtime for the purposes of the FLSA. On April 23, 2024 the DOL released a final rule amending the FLSA increasing the amount required for the salary test. The final rule increases the amount of the salary test for employees classified as exempt under the executive, administrative, or professional duties tests.
The first phase of the DOL’s final rule took effect on July 1, 2024. On July 1, 2024, the standard salary threshold increased from $684 per week to $844 per week—or $43,888 per year. Then in January of 2025, the second phase of the DOL rule goes into effect. The weekly salary required to be considered exempt will increase to $1,128 or almost $60,000 per year.
On July 1, 2024, the threshold for highly compensated employees increased from $107,432 to $132,964. Then in January of 2025, the threshold for highly compensated employees will increase to $151,164. The test for highly compensated employees, however, has become more complicated after the Supreme Court’s recent decision in Helix Energy Solutions Group, Inc. v. Hewitt.15 In Helix, the Supreme Court determined that a highly compensated employee paid at a day-rate did not satisfy the salary basis requirement because there was not a reasonable relationship between the guaranteed amount received and the actual amount received.
Ensuring proper compliance with highly compensated employee and overtime protections can be complex. Drawing on the experience and advice of your general counsel’s office or outside counsel may be advisable to address the particularities of your organization and its challenges.
Loper Bright Enterprises and Challenges to the Agency State: Will the Rule Survive?
The new salary amount threshold rules are the product of agency rule-making. The Department of Labor, a federal agency, issued this final rule. Administrative law and the agency state have been undergoing a serious reconsideration in the wake of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo.16 In Loper Bright Enterprises, the Supreme Court upended the status quo by overruling Chevron v. Natural Resources Council. 17The Chevron case guided federal courts addressing rules issues by agencies like the Department of Labor. Under the doctrine of Chevron Deference, if Congress’s intent in the statute is clear on its face, then the inquiry is over and courts and agencies should follow the letter of the law.17 However, if Congress is silent on a matter in the statute, or there is ambiguity, then courts had to defer to the agency’s expertise in how to implement the law.17 In Loper Bright Enterprises, a 6-3 majority of the Supreme Court determined that the Chevron doctrine was misguided and was inconsistent with the Administrative Procedures Act. Loper Bright opened the door for courts to reject agency rules and offer their own interpretation of statues without deference to the expertise of the agency’s experts. Loper Bright has already been cited 617 times since it was issued in June 2024. This has the potential to limit the ability of agencies to engage in rule-making.
The Loper Bright case offers the potential for serious challenges to the FLSA’s new rules on employee classification and raising the salary amount for the overtime exemption under the act. For example, though the first phase of the salary amount increase went into effect July 1, 2024, there have been numerous case challenges to the rule agency rules in the workplace. Employers have sought nationwide injunctive relief from the effects of the rule as companies challenge the DOL’s authority to make rules under administrative law. Despite these challenges, there are signs that the new rules are likely to go into effect. In Mayfield v. Department of Labor, the Fifth Circuit Court of Appeals affirmed a district court ruling that recognized the DOL’s authority to set minimum salary threshold amounts because the FLSA gives the agency statutory authority to undertake rule-making.18 Further, the Fifth Circuit Court of Appeals noted that the agency’s move to exercise this authority does not violate the U.S. Constitution. Although there may be some uncertainty ahead as even settled agency rules rely on Chevron face deference and increasing challenges in federal courts, the Mayfield decision makes it clear that covered employers should prepare to comply with the new rule in 2025.
Check Your State and Local Laws: The Case of Minimum Wage
It is always important to be mindful of state and local laws. Many states have protections that complement the FLSA. It is always important to be aware of circumstances where state law may provide more protection for employees in the workplace. One example of this is in the realm of minimum wage laws.
The FLSA requires that employers pay employees covered under the act at least the federal minimum wage. The federal minimum wage constitutes a national floor for wages for most employees. The FLSA’s minimum wage for most employees is $7.25 per hour. Many states have a significantly higher minimum wage, but states that do not have a minimum wage or that have a minimum wage that is lower, $7.25 represents the floor below which most employees cannot fall. There are exceptions to the minimum wage. For example, the minimum wage for some employees that receive tips is $2.13. It is important to note that many states have a higher minimum wage and a higher tipped minimum wage. For example, the state of California has a minimum wage of $16 per hour for all employees including tipped employees and a higher minimum wage of $20 per hour for fast food workers. Some cities also have higher wages than the federal minimum wage. For example, in Seattle for employers with more than 501 employees the minimum wage is $19.97 per hour.19
FLSA does not do many things. It does not make any provisions for paid or unpaid leave, holiday, sick pay, severance pay or sick pay. It also does not have any requirement for rest breaks of premium pay on the weekends. There are no requirements related to discharge notices, reasons for discharge, or timing of pay for employees. Many of these things are not required by federal law, but they may be covered under your state and local laws.
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- Retrieved on October 7, 2024, from dol.gov/agencies/whd/flsa/misclassification/rulemaking
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/overtime/rulemaking
- Retrieved on October 7, 2024, from constitutioncenter.org/the-constitution/supreme-court-case-library/west-coast-hotel-co-v-parrish
- Retrieved on October 7, 2024, from dol.gov/agencies/oasam/centers-offices/civil-rights-center/internal/policies/equal-pay-for-equal-work
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/40-child-labor-farms
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/pump-at-work
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/14-flsa-coverage
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/18-flsa-seasonal-amusement
- Retrieved on October 7, 2024, from supreme.justia.com/cases/federal/us/584/16-1362/
- Retrieved on October 7, 2024, from webapps.dol.gov/elaws/whd/flsa/docs/hazag.asp
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/17i-overtime-blue-collar
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/17d-overtime-professional
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/17e-overtime-computer
- Retrieved on October 7, 2024, from dol.gov/agencies/whd/fact-sheets/17f-overtime-outside-sales
- Retrieved on October 7, 2024, from supremecourt.gov/opinions/22pdf/21-984_j426.pdf
- Retrieved on October 7, 2024, from supremecourt.gov/opinions/23pdf/22-451_7m58.pdf
- Retrieved on October 7, 2024, from supreme.justia.com/cases/federal/us/467/837/
- Retrieved on October 7, 2024, from news.bloomberglaw.com/daily-labor-report/fifth-circuit-green-lights-labor-departments-overtime-authority
- Retrieved on October 7, 2024, from seattle.gov/laborstandards/ordinances/minimum-wage