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# 3120 - FAIR LABOR STANDARDS ACT: MINIMUM WAGE, OVERTIME, GARNISHMENT

January 1, 1986 and Fair Labor Standards Amendment of 1989 -- updated 2009

This pamphlet is primarily designed to bring you up-to-date with various provisions of the Fair Labor Standards Act (FLSA) administered by the Wage & Hour Division of the U.S. Department of Labor. Certain provisions of the law are enforced by other governmental agencies.

Since interpretations and regulations under the Act are made periodically, and new amendments may be promulgated, it is important to seek current information on the status of applicable laws in this area. Detailed questions can be best answered by the local office of the Department of Labor's Wage & Hour Division, or by your counsel. Certain states or local laws and regulations may also be applicable, and in some instances, may be more demanding than federal law.

  1. Contents
  2. Basic Wage Standards
  3. Who is Covered
  4. Child Labor Provisions
  5. Special Minimum Wage Provisions
  6. Equal Pay Provisions
  7. Age Discrimination
  8. Keeping Records
  9. Poster
  10. Enforcement
  11. Federal Wage Garnishment Law

I. Basic Wage Standards

Minimum Wage:  The minimum wage is $7.25 per hour (effective July 24, 2009).

Visit the US DOL Wage & Hour Division for the current information: http://www.dol.gov/whd/minimumwage.htm. 

Training Wage: Workers under 20 years of age may be paid less than the minimum wage for their first 90 days of employment. The training wage is 4.25.

Overtime: After 40 hours of work in a seven-day workweek, overtime is due at the rate of not less than one and one half (1½) times the employee's regular rate.

When are Wages Due: Wages payable under the Act are due on the regular payday for the pay period covered.

What the Fair Labor Standards Act Does Not Require: The following items are not dealt with by the Act, but are left up to agreements between employer and employee or employee representatives: vacation holiday, severance or sick pay; a discharge notice or reason for discharge; rest periods, holidays off, or vacations; premium pay rates for weekend or holiday work, pay raises or fringe benefits, a limit on hours of work for employees 16 years of age or older.

To view any state's minimum wage, visit http://www.dol.gov/whd/minwage/america.htm. 

II. Who is Covered

The Fair Standards Act provides that employers subject to its provisions must pay its employees the specified minimum wage and overtime compensation. There are various exemptions from the Act, or portions of the Act, which are based on factors such as type of business activity, the amount of business and the particular job performed by an employee.

Smaller Dealer Exemption: Businesses with annual sales volume of less than $500,000 are exempt from the minimum wage and overtime provisions unless they perform duties affecting interstate commerce. 

Farm Equipment Dealers' Overtime Exemption for Certain Salesmen, Partsmen and Mechanics: The Act provides an exemption from its overtime provisions for certain salesmen, partsmen and mechanics who are employees of dealers, primarily engaged in selling or servicing farm implements to ultimate consumers. This exemption applies to dealers selling or servicing automobiles and trucks as well. The exemption applies if both of the following requirements are met:

  1. The business is a non-manufacturing establishment that is primarily engaged in sales of automobiles, trucks or farm implements to ultimate consumers, i.e., more than 50 percent of its annual dollar volume in sales is derived from sales of automobiles, trucks or farm implements to ultimate consumers.
  2. The salesmen, partsmen and mechanics are primarily engaged, i.e. spend over 50 percent of their time, in selling or servicing automobiles, trucks or farm implements to ultimate consumers.

Note: The overtime exemption is only available if the sale of farm implements, automobiles or trucks to ultimate consumers constitutes more than 50 percent of a dealer's annual dollar volume in sales. A dealer would not qualify for the exemption if more than 50 percent of its annual dollar volume in sales is derived from sales of non-farm equipment and machinery such as construction, utility, lawn and garden equipment not normally used in farm operations, or sales of parts, services and repairs. This latter statement means that if the sale of parts and service work are more than 50% of total sales, the business does NOT qualify for the overtime exemption.

Note: The primary duty test with respect to salesmen, partsmen and mechanics has been construed to mean that an employee must spend more than 50 percent of his time doing an exempt task in order to qualify for the exemption. Example: Suppose an employee spends 10 hours a week doing mechanical repair work and 30 hours a week doing general duties, such as building maintenance carpentry, washing, polishing, etc. he would not meet the "primary duty" test for a mechanic.

Examples of work that have been held not to be mechanical work for the purpose of the primary duty test are:

  1. Washing, cleaning, polishing
  2. Lubricating
  3. Packing wheel bearings
  4. Changing oil and oil filters
  5. Changing tires
  6. Painting
  7. Carpentry
  8. Dispatching
  9. Installing or repairing seat covers

According to the Wage & Hour Division, employees not covered by the overtime exemption include service writers, service advisors and service managers who are not themselves primarily engaged in mechanical work. However, a service manager may be exempt if he meets the conditions to qualify as an executive employee. Of course, coverage or exemption depends upon actual duties, not mere titles of positions.

Note: The Wage & Hour Division of the Department of Labor has taken the position that "set-up men" or "knockdown machinery assemblers" are not mechanics, are not included in the overtime exemption provision applicable to mechanics. Government investigators have stated that the assembling of plows and other farm implements which have been cut to measurements and for which all the parts have been manufactured to fit together is not the work of a mechanic within the meaning of the overtime exemption. Of course, whether or not an employee is a "set-up man" or "knock-down machinery assembler" as opposed to a mechanic, will depend not on the title or designation given to him by the employer, but rather on the nature of work actually performed by that employee.

Note: If a dealer does not satisfy the farm implement sales requirement, there may still be overtime exemptions available for certain commission employees, executive, administrative professional and outside sales personnel, discussed below, which are separate exemptions.

Exemptions from Overtime for Certain Commission Employees: The Act provides an exemption from its overtime requirements for certain commission employees. This exemption may apply to those employees who do not satisfy the salesmen, partsmen and mechanic exemption discussed above. The following conditions must be met:

  1. The business establishment must be a "retail or service establishment", i.e., at least 75 percent of the annual volume of sales of goods and services is not for resale and is recognized as retail sales in the industry; and
  2. The employee's regular rate of pay is in excess of one and one-half times the minimum hourly wage rate; and
  3. More than 50 percent of the employee's compensation for a representative period (not less than one month) must represent commission on goods or services.

Note: Some dealerships have compensated mechanics on the basis of a "flat rate hour." The Wage & Hour Division has considered such payments to represent "commissions on goods and services" under appropriate circumstances.

The Motor Carrier Exemption: Certain employees of dealerships who work as drivers, drivers' helpers, loaders or mechanics may also be exempt from the overtime requirements for each week during which their duties affect the safety of an interstate motor vehicle shipment. This means a shipment must cross state lines, or the trip must connect with an intrastate terminal (rail, air, water or land) to continue an interstate journey of goods that has not come to rest at a final destination.

Executive, Administrative, Professional and Outside Sales Personnel Exempt from Minimum Wage and Overtime: These employees are exempt from the minimum wage and overtime provisions of the law, provided they meet the basic requirements. While there are minimum salary and other requirements as well, generally an executive employee's primary duty must be the management of the enterprise, or a recognized department or subdivision, and he must directly supervise two or more employees. Effective August 18, 2004 new rules also require that the executive exercise authority to hire or fire other employees or makes recommendations as to hiring, firing, and promotions that are given "particular weight." The rules provide guidance as to the term "particular weight," including the frequency of an employee's recommendations and whether such recommendations are relied upon.

An administrative employee also must meet a salary or fee test and other requirements, and must primarily perform responsible office or non-manual work directly related to management policies or general business operations of the company or its customers. The administrative exemption is the most difficult of the exemptions to apply, and accordingly, has been the most heavily litigated white-collar exemption. Effective August 2004 new rules require this position to make discretionary and independent judgments. The new rules also require that the administrative employee's discretion and independent judgment is exercised with respect to "matters for significance." The new rules also provide sparse new guidance as to what constitutes work of an "administrative" character, which has spawned a substantial number of class action lawsuits.

A professional employee must primarily perform work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction., and also must meet a salary or fee test and other requirements. Effective August 2004 new rules clarify that, with few exceptions, work experience may not be substituted for formal education in the professional duties test. Specifically, the regulations provides that "the learned professional exemption also does not apply to occupations in which most employees have acquired their skill by experience rather than by advanced specialized instruction."

An outside salesman must be employed to make sales away from the employer's place of business, and he must regularly do this work, performing only a limited amount of non-exempt work. There is no special minimum salary requirements for the outside salesman in order for the exemption to apply.

Note: Under Wage & Hour Division regulations, an employee does not qualify for the executive, administrative or professional exemption if that employee is paid on an hourly basis.

Effective August 2004, the new rules raise the minimal salary threshold for the overtime exemption from $155 per week (or $8,060.00 annually) to $455 per week (or $23,660.00 annually). Following a 120 day "grace period," any employee earning a salary of less than $455 per week cannot be considered exempt regardless of their duties. The new Regulation also contain a highly compensated employee exemption for employees whose total annual compensation exceeds $100,000. Employees earning $100,000 per year are exempt so long as they "customarily and regularly" perform a single exempt duty or responsibility of an executive. administrative, or professional employee as defined by the regulation.

The "salary basis" requirement prohibits most deductions or "docking" of salary pay --otherwise the exemption may be lost for that employee and all similarly situated employees. The rules expressly permit deductions from an exempt employee's weekly pay under the following circumstances.

 The new regulation also clarifies the "window of corrections" mechanism, which permits employers to correct inadvertent deductions without destroying the exemption, and provides a new safe harbor protection for employers relating to the "salary basis" requirement. Under the new regulation, an employer may avoid liability for improper deductions of an exempt employee's salary by: (1) promulgating a clearly communicated policy prohibiting improper deductions from salary pay; (2) establishing a complaint mechanism for employees to report any improper deductions; (3) making a good faith commitment of future compliance; and (4) reimbursing employees for any improper deductions. This safe harbor provision protects the exempt status of qualified employees, unless an employer willfully violates the policy and continues to make unlawful deductions.

III. Child Labor Provisions

Sixteen years is the minimum age for most employment covered under the act. Eighteen years is the minimum age for employment in occupations declared hazardous by the Secretary of Labor. There are various exemptions for students and training programs, particularly in regard to farm machinery and tractor operations.

Fourteen years is the minimum age for employment outside school hours, but hours are regulated under specified conditions described in the Child Labor Regulations. State or Local regulations also apply.

IV. Special Minimum Wage Provisions

Training Wages: An employer is eligible to pay the training wage if that employer:

  1. Notifies the Labor Department annually of the positions which are eligible for the training wage.
  2. Provides on-the-job training which meets Labor Department regulations.
  3. Keeps on file a copy of its training program and provides a copy to employees.
  4. Posts a notice of the positions which will provide on-the-job training.
  5. Files a copy of such notice with the Labor Department annually.

Employers are also required to provide employees with written notice of the requirements of the Amendments with respect to the training wage and the remedies provided for violations of the statute.

An employee is eligible for employment at the training wage if that employee:

  1. is not a migrant agricultural worker or seasonal agricultural worker;
  2. is under 20 years of age; and
  3. has been employed by any employer at the training wage less than 90 days or is engaged in on-the-job training.

In no event may an employee receive the training wage for a period exceeding 180 days. Individuals are responsible for providing employers with proof of past employment so that employers may determine the length of time, if any, the employee is eligible to receive the training wage. Employers may rely in good faith on such proof.

Note: On-the-job training is defined by the Amendments as "training that is offered to an individual while employed in productive work that provides training, technical and other related skills and personal skills that are essential to the full and adequate performance of such employment." This definition will be amplified by Labor Department regulations promulgated to guide eligible employers.

Note: No eligible employee may be paid the training wage if the employer has laid off any other individual from the position in question or any substantially similar position, or if the employer has terminated another employee with the intention of filling the vacancy with an employee at the training wage. Finally, during any month in which employees are paid the training wage, the total hours of training wage employees may not exceed 25% of the total hours of all employees in that establishment.

V. Equal Pay Provisions

Under the equal pay provisions of the Act, an employer may not discriminate on the basis of sex by paying employees of one sex at rates lower than he pays employees of the opposite sex in the same establishment, for doing equal work on jobs requiring equal skill, effort, responsibility, and which are performed under similar working conditions.

Exempt employees - executive, managerial, etc. are also covered by the equal pay provisions.

Exemptions are provided under the Act if an employer can show that a wage differential is based on a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or any other factor other than sex.

The Equal Employment Opportunity Commission is responsible for enforcement of the Equal Pay Act.

VI. Age Discrimination

Individuals who are at least 40 but less than 70 years of age are protected from illegal age discrimination in matters of hiring, discharge, compensation, or other items, conditions or privileges of employment. Certain smaller companies are not covered by the Age Discrimination Act. The Equal Employment Opportunity Commission is responsible for enforcement of the Act.

VII. Keeping Records

Certain employee records must be kept. No particular form of record is required. Some required record-keeping items include:

  1. Name of employee in full.
  2. Home address, including zip code. 3. Date of birth.
  3. Sex and occupation.
  4. Time of day and week when the employee's workweek begins.
  5. Regular hourly rate of pay in any workweek in which overtime premium is due; and basis of wage payment (such as $4 an hour, $32 a day, $160 a week, or $120 a week plus 5% commission).
  6. Daily and weekly hours of work.
  7. Total daily or weekly straight-time earnings. 9. Total overtime pay for the workweek.
  8. Total additions to or deductions from wages paid each pay period.
  9. Total wages paid each pay period.
  10. Date of payment and the pay period covered by payment.
    11. These records must be preserved for at least three years.

VIII. Poster

An employer with any employees covered under the Act must display in his establishment a "Notice to Employees", in a location where the employees can readily see it. This poster, which briefly outlines the Act's basic requirements, may be obtained free of charge from the nearest office of the Wage & Hour Division or on the internet at  http://www.dol.gov/oasam/programs/osdbu/sbrefa/poster/matrix.htm. 

IX. Enforcement

It is against the law to discharge an employee for filing a wage and hour complaint or participating in a proceeding under the law. Willful violations of the law may be prosecuted criminally, and the violator fined up to $10,000. A second conviction for violation may result in imprisonment of not more than six months. A two-year statute of limitations applies to the recovery of back wages, except in the case of willful violations, in which case three-year statute of limitations is applicable. Liquidation damages equal in amount to back wages due employees may also be sought and attorneys' fees are recoverable in a suit brought directly by affected employees. Authorized representatives of the Wage & Hour Division may investigate and gather data regarding wages, hours, and other conditions and practices of employment.

What should dealers do to avoid liability?

  1. Review the current classifications of all employees who are not being paid overtime, and reclassify them as necessary.
  2. Review current personnel policies and payroll practices, and ensure they are modified as appropriate.
  3. Create detailed job descriptions.
  4. Create a "safe harbor" policy for improper deductions. 
  5. Consider a "preemptive wage and hour audit by legal counsel.

X. Federal Wage & Garnishment Law

This law restricts the amount of an employee's "disposable earnings" that may be deducted in one week through garnishment. An employee's "disposable earnings" means that part of the earnings remaining after the deduction of any amount required by law to be withheld, such as federal and state income tax withholding or federal social security tax. Deductions such as those for union dues, health and life insurance, assignment of wages and savings bonds are not considered required by law to be withheld.

When an employee's disposable earnings are less then $114.00 a week (30 x $3.80), none of his earnings are subject to garnishment, when more than $114.00 but less than $142.00 (40 x $3.80), the amount above $114.00 can be garnished; when $142.00 or more, then up to 25% of the disposable earnings can be garnished.

There are also special provisions applicable to court orders for child support and alimony. This law also prohibits discharge from employment because of first-time garnishment, including subsequent garnishment for the same indebtedness. An employer who willfully violates the discharge provisions of this law may be prosecuted criminally and fined up to $1,000.00 or imprisoned for not more than one year, or both.

This law does not alter or replace any state garnishment laws which provide for more limited garnishments than are allowed under the federal law.

-- July 1990, North American Equipment Dealers Association; Revised July 2004, Millisor & Nobil LLP and August 2004, NAEDA Legal Counsel, minimum wage updated April 2010

The Federal Minimum Wage poster is available for download at http://www.dol.gov/oasam/programs/osdbu/sbrefa/poster/matrix.htm.  

For a six-page review of the regulations by NAEDA's legal counsel, click here. (a PDF file).  -- 2007

EXEMPTION FROM OVERTIME CALCULATIONS

(e) "Regular rate" defined

As used in this section the "regular rate" at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee, but shall not be deemed to include--

(1) sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency;

(2) payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment;

(3) Sums [1] paid in recognition of services performed during a given period if either, (a) both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly; or (b) the payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift or savings plan, meeting the requirements of the Administrator set forth in appropriate regulations which he shall issue, having due regard among other relevant factors, to the extent to which the amounts paid to the employee are determined without regard to hours of work, production, or efficiency; or (c) the payments are talent fees (as such talent fees are defined and delimited by regulations of the Administrator) paid to performers, including announcers, on radio and television programs;

(4) contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits for employees;

(5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day of workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) of this section or in excess of the employee's normal working hours or regular working hours, as the case may be;

(6) extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in non-overtime hours on other days;

(7) extra compensation provided by a premium rate paid to the employee, in pursuance of an applicable employment contract or collective-bargaining agreement, for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday (not exceeding eight hours) or workweek (not exceeding the maximum workweek applicable to such employee under subsection (a) of this section, where such premium rate is not less than one and one-half times the rate established in good faith by the contract or agreement for like work performed during such workday or workweek; or

(8) any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program which is not otherwise excludable under any of paragraphs (1) through (7) if--

(A) grants are made pursuant to a program, the terms and conditions of which are communicated to participating employees either at the beginning of the employee's participation in the program or at the time of the grant;

(B) in the case of stock options and stock appreciation rights, the grant or right cannot be exercisable for a period of at least 6 months after the time of grant (except that grants or rights may become exercisable because of an employee's death, disability, retirement, or a change in corporate ownership, or other circumstances permitted by regulation), and the exercise price is at least 85 percent of the fair market value of the stock at the time of grant;

(C) exercise of any grant or right is voluntary; and

(D) any determinations regarding the award of, and the amount of, employer-provided grants or rights that are based on performance are--

(i) made based upon meeting previously established performance criteria (which may include hours of work, efficiency, or productivity) of any business unit consisting of at least 10 employees or of a facility, except that, any determinations may be based on length of service or minimum schedule of hours or days of work; or

(ii) made based upon the past performance (which may include any criteria) of one or more employees in a given period so long as the determination is in the sole discretion of the employer and not pursuant to any prior contract.

-- September 2005, 29 USC §207(e)