With all the press about the December 1, 2017 overtime changes, I’ve spoken to a few small employers recently that didn’t even consider the fact that the federal Fair Labor Standards Act may not apply to their business. So, I wanted to take a step back and explain how this works. First, I should caveat this by stating that any employer can certainly chose to pay more than is required by law, so you can’t ever err by paying an employee as if the FLSA does apply (unlike if you fail to pay and it does apply – that is bad). But I know for some small businesses, the overtime requirement of 40 (FLSA) or 48 (MnFLSA) hours can make a huge difference. As for the cute small employer-like kid in the picture? Just couldn’t help myself…pun intended.
Is Your Business Covered By the FLSA?
There are two ways that an employee (as defined by the FLSA) may fall under the purview of the FLSA – working for a covered enterprise OR individual coverage. In other words, an entire business can meet the requirements for having to pay pursuant to the FLSA, or the business may not meet the requirements but a single employee does, and thus the business must pay that employee pursuant to the FLSA. A business meets the “covered enterprise” test if it has 2 or more employees and meets one of the following:
“(A) (i) has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person; and
(ii) is an enterprise whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated)”
In addition, hospitals and businesses providing medical or nursing care for residents and various types of schools are covered – regardless of whether they are for profit or not for profit. Finally, public agencies are covered enterprises.
Is Your Employee(s) Covered Individually By the FLSA?
If a business does not meet any of the above, an employee working for that business may still be entitled to the FLSA’s protections if the employee’s work regularly engages them in interstate commerce or the production of goods for interstate commerce (even if their job is not the actual production of goods, but related to the process such as a secretary or janitor). General examples are those who work in communications or transportation; regularly use mail/telephone/fax for interstate communication or keep records of interstate transactions; handle, ship, receive goods from another state; cross state lines for work. However, you should not rely on this alone – many of the key terms are further defined, and courts tend to interpret such coverage broadly (in favor of coverage).
The go-to case in the 8th Circuit is Reich v. Stewart (1997), whereby the Court held that the test of such coverage is “whether the work is so directly and vitally related to the functioning of an instrumentality or facility of interstate commerce as to be, in practical effect, a part of it, rather than isolated, local activity”. In Reich, since the employees were making pallets that were sold across state lines, they were covered by the FLSA, even though the business had less than $500,000 in gross sales. Also, domestic service workers (nannies, cooks, chauffeurs, housekeepers, day workers) are covered if the cash wages from an employer are at least $2,000 (the threshold determined by the Social Security Administration each year) or the work more than 8 hours a week for one or more employers.
What Does the Minnesota Fair Labor Standards Act Require If the FLSA Does Not Apply?
If the FLSA does not apply, the Minnesota Fair Labor Standards Act may apply to your business. Under the MnFLSA, covered employees are entitled to overtime (1.5x) after 48 hours worked in a workweek (unlike 40 hours under the FLSA). The 48 threshold is based on actual hours worked and so it does not count paid time off, holiday pay, or vacation/sick leave. However, as with the FLSA, certain employees are exempt from the state law. In general, employees typically exempt are certain agricultural workers, seasonal day camp staff, outside sales persons (over 80% sales outside), elected officials, volunteers for nonprofits, taxicab driver, nanny, seasonal recreation such as skiing), and a few more – you can find them at Minn. Stat. 177.23 under the definition of “Employee”.
Also, keep in mind that if the FLSA applies, the MnFLSA may likely still also apply – so that the stricter of the two would need to be followed. Sometimes Minnesota does not allow exemptions from overtime requirements that the FLSA does. Accordingly, because you are a Minnesota employer, you must also look to Minnesota law to be sure an FLSA-exempt employee is also exempt under Minnesota’s FLSA. So, while it may take a bit of work to make the determination whether the FLSA applies to your business or an employee, I know for smaller, local employers, it sure may be worth it – and it can be done!