What Businesses Does the Fair Labor Standards Act Cover?

My posts during the past two weeks have been about the proposed new salary standard for the administrative and executive exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) and the issuance of an Administrator’s Interpretation by the federal agency responsible for enforcing the FLSA of what is required for a worker to be properly classified as an independent contractor.  In both instances, the news was not good for employers who are looking to keep their labor costs down.  In the business section of the July 19 edition of the AJC, there was a story about the impact on Georgia employers of the proposed new salary standard.   The spokesperson for the Georgia Retail Association was quoted as estimating the new standard would affect 53,100 employees in the retail and restaurant industry and according to the story’s author, potentially another 100,000 employees in other Georgia industries could be affected if the national estimates of employees affected were applied proportionally to Georgia.

Those are impressive numbers, but what caught my eye was the statement in the story that, “Overtime pay is not required of companies with revenue of less than $500,000, and the new rules would not change that.”  If correct, that would let many smaller Georgia employers off the hook as far as the proposed new salary standard and the independent contractor issue were concerned.  Unfortunately, that statement is not completely accurate. I would have to give it a “Half True” on the AJC’s politifact meter.

The FLSA’s requirements apply to any employee “who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce.”  An employee is engaged in commerce if they perform any services that have anything to do with “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.”  For insurance agencies and any other business, this would cover any employee who communicated with anyone outside the state of Georgia in any way (telephone, e-mail, text, telefax) while performing services on behalf of the business.  In today’s economy, that would include most of the employees of an insurance agency.

Strictly speaking, if an insurance agency or any other business had one or more employees who did not “engage in commerce” (e.g., a janitor or other cleaning person) as part of the services they performed, those employees would not have to be paid the minimum wage or overtime pay.  This because the FLSA is based on the power of Congress to regulate commerce between and among the states and with foreign countries.  It has no power to regulate persons or activities that do not in some way affect interstate or foreign commerce.  Back in 1938 when the FLSA was first adopted, there were many employees of businesses that “engaged in commerce” but whose duties had nothing to do with such commerce.  To reach those employees of such businesses, the FLSA was made applicable to all the employees of any business that had at least some of its employees “engaged in commerce or in the production of goods for commerce” and that had a specified minimum amount of annual revenue.  Today, that specified minimum amount of revenue is $500,000.00.

So any business that has employees who are not “engaged in commerce” and has gross annual revenue of less than $500,000 does not have to pay such employees the minimum wage or overtime pay.  However, any such business should be prepared to prove that such employees are exempt to the U.S. Department of Labor if they choose not to pay them in accordance with the FLSA’s requirements.