Many small business owners prefer to hire independent contractors instead of employees to keep their operations running. But simply calling these workers independent contractors doesn’t always truly defined their legal status. Depending on their relationship with the business, these workers can be considered employees by the federal government. Therefore, to properly comply with federal wage and hour laws, businesses owners must figure out if their workers – or their business – or in some cases both – must follow the Fair Labor Standards Act (FLSA).
First, you must decide whether you as an employer are subject to the FLSA. If you meet these two tests, the commerce test and the dollar test, then everyone who works for you is covered by the FLSA and you must classify those employees as either exempt or nonexempt. An employer meets the commerce test if the business is engaged in interstate commerce, which the federal government controls. Some examples are:
Workers who work in the telephone or television business
Workers who regularly use the telephone, mail, or e-mail for interstate communication to perform their duties
Workers who travel across state lines to perform their duties
Workers who load, pack, handle, or ship goods into or out of state
An employer meets the dollar test if the business has gross yearly sales of at least $500,000. If you do not meet the dollar test, you are not subject to the federal wage and hour laws, even if you’re engaged in interstate or foreign commerce. Since the language of the law uses the word “enterprises,” the law might cover the same employer operating several establishments, if they meet the dollar test when the businesses are considered together, depending on how closely related the businesses are. Under “enterprises” coverage, a business is subject to FLSA requirements for all of its employees if two or more of the establishments are engaged in interstate commerce. But there is a family business exemption, which excludes family businesses from enterprise coverage, provided its only employees are the owner’s immediate family.
Even if you as an employer are not covered by the FLSA, some or all of your workers may be individually covered by the FLSA. For a worker to be protected they must either be 1) engaged in interstate or foreign commerce or 2) be producing goods for transportation in interstate or foreign commerce. Usually, simply using the mail or telephone to communicate with people in other states is enough to establish that you are participating in interstate commerce. Workers meeting either of the above requirements are entitled to federal wage and hour protections, unless they are specifically exempt by another provision in the law.
As an employer, you must classify each employee as either exempt or nonexempt for FLSA purposes. Employees who are classified as exempt are not entitled to the wage and hour law protections under the FLSA and you as an employer are not required to comply with the FLSA for them.
These exempt employees must have certain job duties and earn more than $455 per week in salary, meaning that if these specific employees hold these job duties but earn under $455 per week, then they are nonexempt and must be entitled to FLSA protections. Some examples of exempt worker job duties are:
Executives in a management-related role
Administrative employees performing office work related to business operations
Professionals using advanced knowledge to perform their duties
Also, employees performing non-manual work and paid a total annual compensation of $100,000 plus (which must include at least $455 per week on a salary basis) are exempt from the FLSA, if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee.
On the other hand, employees who are classified as nonexempt are entitled to minimum wage, overtime pay for all hours worked in excess of 40 hours per week, as well as other protections under the FLSA, such as child labor and equal pay. Once you have decided your own and your employees’ statuses, then you can start dealing with specific issues under the FLSA. If you are unsure of either of these, then consult with an employment law attorneys to ensure that you are in compliance. Kieu-Nhi Le, Rutgers School of Law Newark candidate for a JD degree in May 2016. She is the Managing Business Editor of the Rutgers Computer and Technology Law Journal collaborated with me on this blog.