In the United States, there is a minimum wage, and employees must receive overtime pay. But how and when do these provisions apply? Where do they come from?
The Fair Labor Standards Act was enacted in 1938 and gave employees the right to a minimum wage and overtime pay. This Act was passed to protect the country’s worker from being underpaid and overworked and to help them maintain a decent standard of living.
The FLSA requires employers to pay each employee at least $7.25 per hour and to pay an employee at least one and a half times the regular for hours worked beyond forty hours per week. However, these provisions do not apply to every employer and they do not cover every employee.
While the FLSA does apply to employers and employees engaged in or affecting interstate commerce (individual coverage) or those employees employed by an enterprise engaged in those interstate activities (enterprise coverage), the Act only covers employees, not independent contractors. Thus, an employer-employee relationship must exist for an employee to receive minimum wage and overtime pay.
The FLSA defines “employee” as an “individual who is employed by an employer,” and “employ” as “to suffer or permit to work.” Thus, an employee is one who suffers or is permitted to work. Courts have consistently held this definition of employee to be the broadest of the federal employment statutes.
Under the FLSA, the test for determining who is an employee depends on the economic realities of the worker’s dependence on the employer. This is called the “economic realities test.” Five factors are important: the degree of control exercised by the employer, the relative investments made by the worker and the employer, the worker’s opportunities for profit and loss, the skill and initiative required, and the permanency or duration of the relationship.
If an employer-employee relationship exists, the FLSA will apply only if there is individual coverage or if there is enterprise coverage.
An employee is covered by the FLSA, and thus required to be paid minimum wage and overtime, if he is engaged in work that is in or affecting interstate commerce. This is called individual coverage. Since the New Deal, work that is in or affecting interstate commerce has included most jobs, and “affecting interstate commerce” has been interpreted broadly. Thus, individual coverage of the FLSA includes most employees, such as those who produce goods that are sent out of states, those who regularly make telephone calls out of state, and those who handle interstate transactions. Especially with the introduction of the internet and electronic commerce, most workers will be engaged in or affecting commerce and will be protected by the FLSA.
Even if there is no individual coverage, there still may be enterprise coverage. An employee is covered by the FLSA if he is employed by an enterprise—any group of related activities performed under common control for a common business purpose—that has a total gross volume of $500,000 or more, and has at least two employees engaged in or affecting interstate commerce. These employers include hospitals, schools, and government agencies.
These rules govern the scope of the FLSA and determine which employers and employees must abide by the FLSA guidelines. However, even if an employer is covered by the Act, there still may be exemptions from the minimum wage and overtime requirements for certain employees.