FLSA Compliance Guide: Overtime, Minimum Wage & Exemptions [2026]

Quick Answer: What Does the FLSA Require?

The Fair Labor Standards Act (FLSA) is the primary federal law governing wages and hours in the United States. It establishes three core protections for workers:

The FLSA is enforced by the U.S. Department of Labor Wage and Hour Division (WHD) and applies to enterprises with annual gross sales of at least $500,000, as well as hospitals, schools, and government agencies. Individual employees engaged in interstate commerce are also covered regardless of employer size.

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Federal Minimum Wage: $7.25 Per Hour

The federal minimum wage has been $7.25 per hour since July 24, 2009, set by the Fair Minimum Wage Act of 2007 (an amendment to the FLSA). This is the longest period without a federal minimum wage increase since the FLSA was enacted in 1938.

State Minimum Wage Variations

Many states and localities set their own minimum wages above the federal floor. When state and federal minimums differ, employers must pay the higher of the two rates. As of 2026, notable state rates include:

Currently, 30 states plus Washington D.C. have minimum wages above the federal rate. Several states also have automatic annual adjustments tied to the Consumer Price Index (CPI).

Tipped Employees

Employers may pay tipped employees a direct wage as low as $2.13 per hour under the FLSA, provided that amount plus tips equals at least $7.25 per hour. This is known as the tip credit. If an employee's tips do not bring their hourly earnings to at least $7.25, the employer must make up the difference.

Seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) do not permit tip credits, meaning tipped workers must receive the full state minimum wage before tips.

Youth Minimum Wage

The FLSA allows employers to pay workers under age 20 a minimum wage of $4.25 per hour during their first 90 consecutive calendar days of employment. After 90 days or when the employee turns 20 (whichever comes first), the full minimum wage applies.

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Overtime Rules: Time-and-a-Half After 40 Hours

Under Section 7 of the FLSA, non-exempt employees must receive overtime pay at 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek. Key points:

Defining the Workweek

• A workweek is a fixed, recurring period of 168 hours (seven consecutive 24-hour periods)
• The employer chooses when the workweek begins and it does not need to align with the calendar week
• Each workweek stands alone -- employers cannot average hours across two or more weeks
• There is no limit on the number of hours an employee aged 16 or older can work in a week

Calculating the Regular Rate

The regular rate is not simply the hourly wage. Under the FLSA, the regular rate includes:

• Base hourly rate or salary equivalent
• Non-discretionary bonuses and commissions
• Shift differentials
• Piece-rate earnings

The regular rate excludes gifts, discretionary bonuses, employer contributions to benefit plans, vacation/holiday/sick pay, and payments for periods when no work is performed.

Example: An employee earns $20/hour and works 45 hours in a week. They also received a $100 non-discretionary production bonus for that week.

1. Straight-time pay: 45 hours x $20 = $900
2. Add bonus: $900 + $100 = $1,000
3. Regular rate: $1,000 / 45 hours = $22.22/hour
4. Overtime premium: $22.22 x 0.5 x 5 overtime hours = $55.56
5. Total pay: $1,000 + $55.56 = $1,055.56

State Overtime Laws

Some states have additional overtime requirements:

• California: Daily overtime (1.5x after 8 hours/day, 2x after 12 hours/day) plus weekly overtime
• Alaska: Daily overtime after 8 hours
• Colorado: Daily overtime after 12 hours
• Nevada: Daily overtime after 8 hours (if regular rate is less than 1.5x minimum wage)

Employers operating in multiple states must comply with the most favorable law for the employee.

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Exempt vs Non-Exempt: Who Qualifies for Overtime?

The FLSA exempts certain employees from both minimum wage and overtime requirements. To be classified as exempt, an employee must generally meet all three tests:

1. Salary Basis Test

The employee must be paid on a salary basis, meaning they receive a predetermined, fixed amount that is not reduced based on the quality or quantity of work performed. The employee must receive their full salary for any week in which they perform any work, regardless of hours worked.

2. Salary Level Test

The employee must earn at least $35,568 per year ($684 per week). This threshold was set by the DOL in 2019. Note: A 2024 DOL rule attempted to raise this to $43,888 (and eventually $58,656), but this was struck down by federal courts. The $35,568 threshold remains in effect.

3. Duties Test (White-Collar Exemptions)

The employee must perform exempt job duties falling into one of these categories:

Executive Exemption

• Primary duty is managing the enterprise or a recognized department/subdivision
• Customarily and regularly directs the work of at least two full-time employees (or equivalent)
• Has authority to hire or fire, or their recommendations on hiring/firing carry particular weight

Administrative Exemption

• Primary duty is performing office or non-manual work directly related to management or general business operations
• Primary duty includes the exercise of discretion and independent judgment on matters of significance

This is the most frequently litigated exemption. The DOL has clarified that administrative employees must do more than carry out routine tasks -- they must have authority to make decisions that affect business operations.

Professional Exemption

Learned Professional: Primary duty requires advanced knowledge in a field of science or learning, customarily acquired through prolonged, specialized intellectual instruction (e.g., doctors, lawyers, accountants, engineers, registered nurses).

Creative Professional: Primary duty requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (e.g., writers, actors, musicians, composers).

Other Exemptions

• Computer employees: Systems analysts, programmers, and software engineers paid at least $684/week salary or $27.63/hour
• Outside sales: Employees whose primary duty is making sales away from the employer's place of business
• Highly compensated employees: Those earning $107,432 or more annually who perform at least one exempt duty

Misclassification Risks

Misclassifying non-exempt employees as exempt is one of the most common and costly FLSA violations. The consequences include:

• Back pay for all unpaid overtime (up to 2 years, or 3 years if willful)
• Liquidated damages equal to the amount of back pay owed (effectively doubling liability)
• Attorney fees and court costs
• DOL penalties of up to $2,374 per violation for repeated or willful violations

Job titles alone do not determine exemption status. A "Manager" who spends 90% of their time performing the same duties as hourly workers and has no real supervisory authority is likely non-exempt regardless of title.

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Record-Keeping Requirements

The FLSA requires employers to maintain specific records for each non-exempt employee for at least three years:

Required Records

1. Full name and Social Security number
2. Address, including ZIP code
3. Birth date (if under 19)
4. Sex and occupation
5. Time and day of week when employee's workweek begins
6. Hours worked each day and total hours worked each workweek
7. Basis on which employee's wages are paid (hourly rate, weekly salary, piecework)
8. Regular hourly pay rate
9. Total daily or weekly straight-time earnings
10. Total overtime earnings for the workweek
11. All additions to or deductions from the employee's wages
12. Total wages paid each pay period
13. Date of payment and pay period covered

Time-Keeping Methods

The FLSA does not mandate a specific time-keeping system. Employers may use:

• Time clocks or electronic badge systems
• Time-tracking software or apps
• Manual time sheets signed by the employee

Whatever system is used, it must accurately record all hours worked. "Hours worked" includes all time an employee is required to be on duty, on the employer's premises, or at a prescribed workplace, as well as any additional time the employee is "suffered or permitted to work."

Off-the-Clock Work

Employers are liable for overtime even if they did not explicitly authorize the work, as long as they knew or should have known the employee was working. Common off-the-clock violations include:

• Requiring employees to set up equipment before clocking in
• Expecting employees to answer emails or calls after hours
• Automatic deduction of meal breaks even when employees work through them
• Requiring post-shift cleanup or paperwork

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Penalties for FLSA Violations

The DOL and federal courts can impose significant penalties for FLSA violations:

Recent Enforcement Trends

The DOL recovered over $274 million in back wages for workers in fiscal year 2023 alone. Industries with the highest violation rates include:

• Restaurant and food service
• Construction
• Healthcare
• Retail
• Janitorial and cleaning services

The WHD frequently conducts directed investigations in low-wage industries even without employee complaints.

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State-by-State Compliance Considerations

Operating across multiple states adds significant complexity to FLSA compliance:

Areas Where States Diverge

• Minimum wage: 30+ states exceed the federal rate
• Overtime triggers: Some states require daily overtime (California, Alaska)
• Meal and rest breaks: The FLSA has no meal/rest break requirement, but many states do (California requires 30-minute meal breaks and 10-minute rest breaks)
• Pay frequency: States set different requirements for how often employees must be paid
• Pay stub requirements: Many states require detailed itemized pay stubs
• Final pay: State laws vary on when final paychecks must be issued (California requires immediate payment upon termination)

Multi-State Employer Best Practices

1. Identify which state law applies to each employee based on where they perform work
2. Always apply the law most favorable to the employee when federal and state laws conflict
3. Review state laws annually as many states adjust minimum wage and other requirements each year
4. Maintain separate compliance checklists for each state where you have employees
5. Use HR software that can handle state-specific wage and hour rules automatically

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Practical FLSA Compliance Checklist for Employers

Classification Audit

• Review every position classified as exempt against all three FLSA tests
• Document the specific duties that qualify each exempt position
• Re-evaluate classifications when job duties change
• Pay particular attention to the administrative exemption (most commonly misapplied)

Wage and Hour Practices

• Verify all employees earn at least the applicable minimum wage (federal or state, whichever is higher)
• Calculate overtime using the correct regular rate (including non-discretionary bonuses and commissions)
• Never average hours across multiple workweeks
• Prohibit off-the-clock work and train managers accordingly
• Audit automatic meal break deductions to ensure employees actually take breaks

Record-Keeping

• Implement a reliable time-tracking system for all non-exempt employees
• Retain payroll records for at least 3 years
• Keep time cards and schedules for at least 2 years
• Store records securely and make them available for DOL inspection

Ongoing Compliance

• Train managers on FLSA requirements, especially regarding off-the-clock work and overtime
• Monitor state and local wage law changes annually
• Conduct periodic internal audits of pay practices
• Respond promptly to employee complaints about pay

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How Grove HR Supports FLSA Compliance

Grove HR helps US employers stay compliant with the FLSA and state wage laws:

• Automated time tracking that captures all hours worked, including overtime
• Overtime calculations using the correct regular rate, including non-discretionary bonuses
• Exempt/non-exempt tracking built into employee profiles
• State-specific wage rules configurable per employee location
• Payroll export that integrates with US payroll providers (ADP, Gusto, Paychex)
• Audit trail documenting all pay and classification changes
• Manager alerts when employees approach overtime thresholds