Sponsored by:
Navigating the complexities of the Federal Labor Standards Act (FLSA) is essential for running a successful business. Most small business owners juggle many priorities, from growing their customer base to managing daily operations. However, failing to adhere to federal regulations regarding employee classification, record-keeping and compensation may result in costly and unnecessary expenses to a business. Proactive and informed business owners can protect their company and employees by ensuring a fair and lawful workplace.
The two most common employment violations include misclassifying employees as either independent contractors or exempt employees.
Misclassifying employees: Employee vs. independent contractor
An employee works under the supervision or control of an employer. The employer-employee relationship may be reduced to an employment contract. Employees are either part-time or full-time, are eligible for employee benefits in various degrees, and if nonexempt, must be paid for any hours over 40 per week. Employees are subject to both federal and state employment laws, including but not limited to minimum wage, overtime pay and workplace safety, and are entitled to certain benefits such as health insurance and paid leave.
An independent contractor is either an individual (a freelancer) or a company hired by a business to complete specific projects and tasks defined in an independent contractor agreement. Independent contractors generally possess specialized skills or knowledge, control the projects on which they work, do not work under the supervision of the employer and are not entitled to company benefits. Independent contractors are generally considered self-employed individuals responsible for their own compliance with tax and business regulations and are not generally covered by the same employment laws as traditional employees.
Misclassifying employees: Exempt vs. nonexempt employees
Under the FLSA, nonexempt employees must be paid a minimum hourly wage (The federal wage is currently $7.25 per hour, although some states have higher wage requirements) and overtime pay (at a rate of at least one and a half times the hourly pay rate) for all hours worked over 40 in each workweek. Nonexempt employees must also be provided breaks and meal periods. Although exempt employees can be offered compensatory pay in lieu of overtime, nonexempt employees must be paid for any hours worked exceeding 40 hours per week. Because the duty to comply with FLSA reporting and record-keeping falls on the employer, it is imperative to implement a system recording the actual number of hours worked by each nonexempt employee during any workweek.
Exempt employees are generally salaried (minimum of $43,888 as of July 1, 2024, and increasing again to $58,656 on January 1, 2025) and must meet a definition as “exempt” from the FLSA minimum wage and overtime pay. Contrary to many misconceptions, whether an employee is exempt is defined based on the employee’s job duties and salary, not the job title. Exempt employees must fall under one of three classifications: executive, administrative or professional. An executive employee must manage people or tasks and have the authority to hire and fire employees. An administrative employee’s job duties must be non-manual work related to management or general business operations and require the exercise of discretion and independent judgment. Finally, a professional employee must perform work requiring advanced knowledge in a field of science or learning that requires extended learning and discretion. Any employee not falling into one of these three categories is subject to the FLSA regulations.
Failure to properly classify an employee or comply with the FLSA can lead to overwhelming expenses and penalties — even when the employer truly believes the employee was properly paid. Verify your employees are properly classified and that your records system accurately reflects all hours worked and breaks. ROSENBLATT LAW FIRM’s employment lawyers have the experience and understanding to help navigate the often daunting and misunderstood FLSA regulations.
If navigating these requirements seems challenging, know that help is available. At ROSENBLATT LAW FIRM, our seasoned team of attorneys specializes in assisting businesses with CTA compliance. We undertake the necessary steps swiftly to safeguard you and your business against fines and penalties. Schedule a free consultation with us at rosenblattlawfirm.com or (210) 562-2900 to ensure your business stays on the right side of the law.
