The Fair Labor Standards Act (FLSA) is the federal law that sets minimum wage, overtime pay, and recordkeeping standards for most private and public sector employees across the United States.
What the FLSA Actually Covers
Passed in 1938, the FLSA is the backbone of US wage and hour law. It sets the federal minimum wage, defines when overtime pay kicks in, and establishes rules around child labor. It also requires employers to keep accurate records of hours worked and wages paid, which is why so much of payroll compliance traces back to this one law.
The FLSA applies to "covered enterprises," a term that includes most businesses with at least two employees and $500,000 or more in annual revenue, along with hospitals, schools, and government agencies regardless of size.
Exempt vs Non-Exempt Employees
This is where most FLSA confusion starts. Non-exempt employees are entitled to overtime pay, while exempt employees are not. Exemption isn't just about job title. It depends on salary level and actual job duties.
Common exemption categories include executive, administrative, professional, and outside sales roles. Misclassifying someone as exempt when their duties don't qualify is one of the most frequent (and costly) compliance mistakes employers make. Getting this right often means leaning on payroll management tools that flag classification risks before they become audit findings.
Overtime Pay Requirements Under FLSA
For non-exempt employees, the FLSA requires overtime pay at 1.5 times the regular rate for any hours worked beyond 40 in a workweek. There's no cap on how much overtime an employee can work, and there's no requirement for daily overtime unless state law says otherwise.
The regular rate calculation isn't always straightforward either. It has to include most bonuses and shift differentials, not just base hourly pay. Accurate tracking here depends heavily on timeline and productivity tracking that captures hours worked in real time, rather than relying on estimates at pay period close.
Recordkeeping Obligations Employers Must Meet
The FLSA requires employers to keep specific records for each non-exempt employee: hours worked each day, total hours per week, pay rate, and total wages paid. These records need to be retained for at least three years.
Poor recordkeeping doesn't just create internal headaches. It's often the first thing investigators ask for during a Department of Labor audit, and gaps in documentation tend to work against the employer by default.
Penalties for FLSA Violations
Violations can get expensive fast. Employers found in violation may owe back wages, liquidated damages equal to the unpaid amount, and in some cases civil penalties for willful or repeated offenses.
Beyond the financial risk, FLSA disputes often surface during platform evaluations too. Companies comparing systems like Payrun against Paycom frequently prioritize built-in compliance safeguards over flashier features, precisely because a single misclassification error can outweigh years of software savings.
