The Fair Labor Standards Act (FLSA) governs minimum wage, overtime pay, recordkeeping, and youth employment standards for employees in the private sector and in Federal, State, and local governments. Despite being enacted in 1938, FLSA violations remain among the most common and costly compliance failures for employers today.
Mistake #1: Misclassifying Employees as Exempt
The most costly FLSA mistake is incorrectly classifying non-exempt employees as exempt from overtime requirements. To qualify for the executive, administrative, or professional exemptions, employees must meet both a salary test ($684/week minimum) AND a duties test. Many employers focus only on job titles or salary levels without properly evaluating the duties test.
Mistake #2: Failing to Count All Hours Worked
All time an employee is “suffered or permitted” to work must be counted and compensated — including pre-shift preparations, work-related emails after hours, and mandatory training sessions. Many employers fail to capture these off-the-clock hours, creating significant back pay liability.
Mistake #3: Improper Compensatory Time Practices
Private sector employers generally cannot offer “comp time” instead of overtime pay for non-exempt employees. This practice is only permitted for state and local government employers under specific conditions. Many private employers violate this rule unknowingly.
Mistake #4: Incorrect Overtime Calculations with Multiple Pay Rates
When non-exempt employees receive different pay rates for different types of work, bonuses, or shift differentials, overtime must be calculated using the “weighted average” or “rate in effect” method — not simply the standard hourly rate.
Mistake #5: Inadequate Recordkeeping
FLSA requires employers to maintain specific payroll records for non-exempt employees for at least 3 years. Missing records during an investigation can result in the Department of Labor accepting the employee’s account of hours worked — even if estimates seem exaggerated.
Bottom Line
FLSA compliance requires ongoing attention and regular audits. The consequences of violations include back wages, liquidated damages (double damages), attorney fees, and potential criminal prosecution for willful violations.