By Dr. Gary L. Deel, Ph.D., J.D.
Faculty Director, School of Business, American Public University
Note: This article contains content adapted from lesson material written for APUS classes. This is the second article in a five-part series on the slow growth and evolution of federal laws that protect employee rights in the workplace.
In Part I, we talked about the importance of a power balance in the workplace and the role of the National Labor Relations Act (NLRA). In this article, we will introduce the Fair Labor Standards Act and its huge impact on employees’ working conditions.
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Despite the tremendous impact of the NLRA in protecting workers’ rights, it soon became apparent that minimum standards of working conditions still needed to be legally prescribed in order to curb employer abuses. Thus, just three years after passage of the NLRA, the Fair Labor Standards Act of 1938 became the next piece of legislation advancing worker rights. The goal of the FLSA was to improve compensation and labor conditions, particularly in manufacturing, the dominant industry of the time.
A Federally Mandated Minimum Wage Was a Major Component of the FLSA
One of the biggest components of the FLSA was a federally mandated minimum wage. Prior to a minimum wage standard, employers were free to leverage the supply-and-demand dynamics of available work to force workers to accept deplorable compensation.
Congress justified its power to regulate wages on almost every business through the Interstate Commerce Act, and the very first federal minimum wage was set in 1938 (at the time of the FLSA’s enactment) at $.25 an hour. That would be just $4.19 in today’s dollars after adjustment for inflation.
However, the minimum wage obviously has been continuously raised since then. The current federal minimum wage sits at $7.25/hr. and was last adjusted in July 2009.
Although the federal minimum wage prescribes the national compensation floor, it is important to keep in mind that states are free to set their own minimums at higher levels than the federal rate. In fact, 29 states and Washington, D.C., have done so. In addition to state laws that amend the minimum wage, employers should remember that unions may negotiate higher mandatory wages with employers pursuant to the NLRA.
A Few Workplace Exceptions Worth Noting to the FLSA Minimum Wage Mandate
There are a few exceptions worth noting to the FLSA minimum wage mandate. The first is that any business which generates less than $500,000 in annual sales is exempted from the minimum wage requirement. This exception is designed to prevent the federal law from crushing small business growth with unreasonably burdensome labor costs. However, there is also an exception to the exception: Hospitals, schools, and public agencies must abide by the federal minimum wage, notwithstanding their size or revenue volume.
Another exception to the minimum wage mandate applies to tipped workers. Under current law, any employee who regularly receives more than $30 in tips per month is exempt from minimum wage standards. So an employer can credit a percentage of an employee’s tips to meet the federal wage standard.
However, there is still a minimum wage for direct compensation of tipped employees. Under the FLSA, that amount is currently $2.13. This is essentially the lowest hourly rate that a tipped employee can make in the workplace.
If an employee makes tips that are less than the difference between the regular minimum wage ($7.25/hr.) and the tipped minimum wage ($2.13/hr.) — which is $5.12/hr. — then the employer must supplement the employee’s pay with the remainder. But if an employee makes at least $5.12/hr. in tips, the employer is only obligated to pay the $2.13/hr. tipped minimum wage.
It’s also worth noting that the employer must pay the $2.13/hr. tipped minimum wage notwithstanding whether an employee’s tips exceed the $5.12/hr. margin. A tipped employee could make tens or hundreds of dollars an hour in tips and the tipped minimum wage would still apply.
A Final Exception to the Minimum Wage Mandates Concerns Young Employees
A final exception to the minimum wage mandates concerns employment of young employees. In the interest of outlawing child labor in the workplace, the FLSA prohibits the employment of anyone under the age of 14. However, employers in certain industries — retail, services, agriculture, or post-secondary education — are permitted to pay full-time college students 85 percent of the federal minimum wage.
For high school students at least 16 years of age and enrolled in vocational education programs, an employer may pay 75 percent of the federal minimum wage. In both cases, student employees are limited to 20 hours per week while school is in session. In addition, the employer must file for a sub-minimum wage certificate beforehand with the U.S. Department of Labor.
However, it is important to note that employers are prohibited from using these reduced wage incentives to replace other active employees who are legally entitled to higher wages. High school and college students will always be available as an affordable source of labor, but that can’t be used as an excuse to axe older, higher-paid employees. Employers should be very familiar with all workplace laws that pertain to their industry and ensure that their practices conform to those laws.
In the next part of this workplace series, we’ll look at the overtime provisions of the Fair Labor Standards Act.
About the Author
Dr. Gary Deel is a Faculty Director with the School of Business at American Public University. He holds a J.D. in Law and a Ph.D. in Hospitality/Business Management. Gary teaches human resources and employment law classes for American Public University, the University of Central Florida, Colorado State University and others.