The Fair Labor Standards Act (FLSA) is the cornerstone of U.S. wage-and-hour law, governing minimum wage, overtime pay, record-keeping, and youth employment across most public and private workplaces . With the Department of Labor (DOL) issuing sweeping salary-threshold rules in 2024–2025 — and the new 2025 “No Tax on Overtime” deduction hinging on precise FLSA tracking — employers must double-check every facet of compliance or risk fines, back-pay awards, and litigation.
1. Scope and Coverage
- Enterprise coverage applies if a business has ≥ 2 employees and ≥ $500,000 in annual sales, or is a hospital, school, government agency, or residential-care facility .
- Individual coverage attaches when any employee’s duties regularly involve interstate commerce (e.g., online ordering, interstate phone calls) .
- Domestic workers: those earning ≥ $1,000/year from one employer or working > 8 hours/week for multiple employers are also protected .
2. Core Statutory Requirements
3. 2025 Special Focus: “No Tax on Overtime” (OBBBA)
The 2025 One Big Beautiful Bill Act created a temporary above-the-line deduction (up to $12,500; $25,000 joint) for the premium half-time portion of FLSA-mandated overtime pay (2025-2028). To maximize employee benefits and avoid IRS scrutiny, employers must [previous OBBBA article]:
- Create a unique payroll code for FLSA-required overtime premium (0.5× rate).
- Segregate state-only or contractual overtime (e.g., California daily overtime) from federal overtime.
- Report the qualified premium separately on Form W-2 beginning January 2026 (transition relief allows reasonable estimates for 2025).
- Educate employees on claiming the deduction; supply annual overtime summaries.
4. End-to-End Employer Compliance Framework
A. Classification Audit
- Map every position against the executive, administrative, professional, computer, outside-sales, and highly compensated exemption tests .
- Revisit salaries when the 2025 threshold rise becomes final (or is stayed) to determine whether to reclassify employees or raise pay.
B. Automated Time & Payroll Systems
- Choose software that flags > 40 hour weeks, differentiates FLSA vs. state overtime, and produces audit trails .
- Integrate scheduling tools that warn managers before non-exempt staff hit overtime limits.
C. Record-Keeping Discipline
- Capture the 14 core data points required under 29 CFR 516.2 — including workweek start time, daily hours, pay basis, and overtime earnings .
- Retain job descriptions, wage-rate determinations, and exempt-status analyses for 2–3 years minimum .
D. Training & Communications
- Conduct annual FLSA refresher courses for HR, payroll, and front-line supervisors; spotlight 2025 overtime-tax rules.
- Update employee handbooks and distribute the DOL’s FLSA Poster in all worksites (free download) .
E. Internal Audits & Legal Reviews
- Quarterly payroll audits to detect misclassification or off-the-clock work.
- Engage wage-and-hour counsel to vet any incentive pay, bonus, or tip-credit policies for inclusion in the “regular rate” of pay.
F. State-Law Overlay
- Maintain a compliance matrix tracking higher state minimum wages, daily overtime requirements (e.g., CA, CO), and predictive-scheduling laws that impact hours worked.
- Apply the rule most favorable to employees where state and federal requirements diverge .
5. Industry-Specific Tips
| Sector | Top Risks | Targeted Controls |
|---|---|---|
| Healthcare | On-call time, 8/80 nursing overtime rule exceptions | Use scheduling software that distinguishes in-hospital call hours; verify 8/80 compliance. |
| Retail & Hospitality | Variable shifts, tip-credit errors | Track pooled tips; ensure cash wage plus tips ≥ local minimum wage each week. |
| Manufacturing | Piece-rate pay, shift differentials | Convert piece-rate earnings into an hourly “regular rate” before overtime calculations. |
| Tech & Start-ups | Misclassified “computer professionals,” remote work hours | Confirm that highly skilled tech staff meet both duties and salary tests; monitor after-hours remote log-ins. |
6. Frequently Asked Questions (FAQs)
Q1: If a federal court blocks the 2025 salary threshold, do we still owe overtime?
A: Yes. Non-exempt status defaults to the surviving threshold ($684/week) plus duties test. Monitor litigation, as thresholds may change mid-year .
Q2: Can we average hours over two weeks to avoid overtime?
A: Generally no. The FLSA requires overtime after 40 hours each workweek unless a specific industry exemption (e.g., 14-day 8/80 rule for hospitals) applies .
Q3: Do remote employees count toward interstate commerce coverage?
A: Yes. Using email or shipping products across state lines typically triggers individual FLSA coverage .
Q4: How does paid travel time affect overtime?
A: Travel during normal work hours is compensable; overnight, after-hours travel as a passenger may be non-compensable unless work is performed. Compensable travel counts toward the 40-hour threshold.
Q5: What penalties apply for FLSA violations?
A: Back wages, liquidated damages (equal to back wages), civil penalties (up to $1,894 per repeat minimum-wage or overtime violation in 2025), and potential criminal prosecution for willful violations.
Q6: How long must youth-employment records be kept?
A: At least 3 years, including proof of age and daily hours for minors .