The FLSA – What It Is, What It Isn’t, and Why Your Payroll Spreadsheet Might be Crying.
A Katitus People Strategies Weekly Series: Alphabet Soup of Employment Law
At Katitus People Strategies, we understand the struggle for small businesses to untangle the alphabet soup of employment laws. And if there’s one broth that every employer swims in, whether you’ve got two employees or two thousand, it’s the FLSA, the Fair Labor Standards Act.
The FLSA is the law that quietly runs your payroll from behind the curtain. It decides who gets overtime, how you track hours, what deductions you can take, and whether your “salaried” manager is actually exempt or just very tired.
So let’s break it down, with clarity and practicality, and a few cautionary tales of employers who learned the hard way.
Welcome to the FLSA: The Law That Never Sleeps
The FLSA has been around since 1938, and it still acts like it’s the most important person in the room. It sets the federal minimum wage, requires overtime after 40 hours, and tells you exactly what records you must keep. But here’s the part that trips up most small business owners: The FLSA doesn’t care what you call someone. It cares what they do.
You can call someone “salaried,” “manager,” “team lead,” “assistant to the regional manager,” or “Chief Vibes Officer.” None of that matters. The FLSA looks at job duties, pay structure, and actual work performed, not titles or vibes.
Salaried vs. Exempt: Stop Using Those Words Like They’re Synonyms
At Katitus, we hear this at least once a week: “But they’re salaried, so they’re exempt.” No. No they are not. Being salaried just means you pay someone a set amount each pay period. Being exempt means they are legally exempt from overtime under the FLSA. These are not the same thing. They are not even distant cousins.
Think of exempt status like a three‑legged stool:
- Salary Basis: You pay them a consistent salary.
- Salary Level: They meet the minimum salary threshold.
- Duties Test: Their actual job duties fit into an exemption category.
If one leg breaks, the whole stool falls over, and so does your exemption.
A Real Case: The “Salaried Manager” Who Wasn’t
IIn Morgan v. Family Dollar Stores, Inc. (11th Cir. 2008), store managers were paid salaries and given the title but spent 80–90% of their time stocking shelves, running registers, and scrubbing floors alongside hourly staff. The court found that their primary duty was not management, voided the exemption, and awarded $35.6 million in back overtime. The lesson? If your “manager” spends most of their time doing the same work as hourly staff, they’re probably non-exempt — salary and title don’t change that. https://caselaw.findlaw.com/court/us-11th-circuit/1459728.html
Minimum Wage: The Floor Everyone Stands On
The FLSA sets the federal minimum wage at $7.25/hour, and unless your state sets a higher rate, that’s the number you’re working with. (Spoiler: Kansas, Oklahoma, and Texas do not set higher rates. We’ll get into that in Part 2.) But here’s the kicker: Even if you pay someone a salary, you still have to make sure their weekly pay divided by hours worked doesn’t drop below minimum wage. Yes, that happens more often than you’d think.
Overtime: The Rule That Keeps Payroll Clerks Up at Night
Under the FLSA, non‑exempt employees must receive time and a half for all hours worked over 40 in a workweek. Not per pay period. Not averaged over two weeks. Not “but they volunteered.” Not “but they’re salaried.” Forty hours. One week. Every week. And because the FLSA loves clarity, here’s something employers explicitly cannot do: You cannot “bank” overtime.
Not even if you’re trying to be generous. Not even if you offer it at 1.5×. Not even if the employee begs you. There is no such thing as “comp time” in the private sector. If a non‑exempt employee works 46 hours this week, you must pay overtime this week. You cannot “bank” those 6 hours for them to take off next week. That’s a public‑sector concept, and even they have strict rules. If you’re banking overtime, the Department of Labor will treat it like you’re running a side hustle in wage theft.
Federal regulations are explicit: “The Act takes a single workweek as its standard and does not permit averaging of hours over 2 or more weeks.” (29 CFR § 778.104). If your payroll system is averaging, it’s already in violation. https://www.dol.gov/agencies/whd/fact-sheets/23-flsa-overtime-pay
Managing Overtime the Legal Way: Yes, You Can Send Them Home Early
Now, here’s the part employers can do — and often forget: You can manage overtime within the same work week. For example, if an employee has already worked 36 hours by the end of Thursday, you can absolutely say: “Congrats, you’re going home after 4 hours on Friday.” That’s legal. That’s smart scheduling. That’s you managing your labor budget like a responsible adult. What you cannot do is pretend next week’s hours cancel out this week’s overtime like some kind of payroll BOGO sale.
Recordkeeping: Unfortunately, You Actually Have to Track Hours
The FLSA requires employers to keep accurate records of:
- Hours worked each week
- Hours worked each day
- Regular rate of pay
- Total earnings
- Overtime
- Deductions
- Pay dates
If you’re thinking, “But I trust my employees,” that’s lovely — but the Department of Labor does not.
Case Example: The Employer With No Time Records
In Anderson v. Mt. Clemens Pottery Co. (1946), the Supreme Court established a rule that still stings employers today, nearly 80 years later: if you don’t track hours, you can’t fight employee estimates in court. When a Michigan pottery employer failed to keep accurate time records, the Court ruled that workers only need to provide a “just and reasonable inference” of their unpaid hours — and the burden shifts to the employer to disprove it. With no records to rely on, the employer had nothing. The takeaway? Sloppy recordkeeping doesn’t protect you — it exposes you. https://supreme.justia.com/cases/federal/us/328/680/
Maximum Hours Per Day
The FLSA does not limit how many hours an adult can work in a day. You can schedule someone for:
- 8 hours
- 10 hours
- 12 hours
- A shift long enough to question their life choices
As long as you pay overtime after 40 hours in the workweek, the FLSA is unbothered.
Deductions: What you Can and Cannot Take Out of Paychecks
The FLSA allows certain deductions, but only if they don’t drop a non‑exempt employee below minimum wage or cut into overtime.
Common deductions that are restricted:
- Cash shortages
- Broken equipment
- Uniforms
- Customer walkouts
- “Punishment”
Case Example: The Cash Shortage Deduction Disaster
A DOL investigation into Lakhwinder Gill, owner of three New York gas stations, found that he was deducting cash register shortages and missing merchandise directly from employees’ paychecks — pulling their wages below the federal minimum wage. The DOL recovered $84,000 in back wages and damages for 41 workers. If your deduction policy sounds like a parent grounding a teenager (“you break it, you buy it”), it’s probably not legal. https://www.dol.gov/newsroom/releases/sol/sol20161213
Breaks & Meal Periods: The FLSA’s Favorite Plot Twist
Here’s where employers often look at us like we’ve just spoken in riddles: The FLSA does not require employers to provide breaks. Not rest breaks. Not meal breaks. Not coffee breaks. Not “I need to go cry in my car” breaks. But — and this is where it seems unfair — if you choose to offer breaks, the FLSA regulates how they must be paid. Let’s walk through it.
Short Breaks (5–20 minutes): Always Paid
If you give employees a quick breather — a smoke break, a snack break, a “scroll TikTok and question your life choices” break — the FLSA says those minutes are work time. You must pay for them. You cannot dock pay. You cannot require employees to “make up” the time.
Short breaks are like appetizers: once you put them on the table, you’re paying for them.
Meal Breaks (30+ minutes): Unpaid… If They’re Real
A meal break can be unpaid only if the employee is fully relieved of duty. If you interrupt their lunch to ask:
- “Can you check on table 12?”
- “Can you answer the phone real quick?”
- “Can you help unload this delivery?”
Congratulations — you just bought yourself a paid meal period.
Case Example: The Auto-Deduct Lunch Break Fiasco
In Bennett v. Providence Health & Services (Wash. 2024), the health system automatically deducted a second 30-minute meal break from workers’ pay on shifts over 10.5 hours — whether employees actually got the break or not. A jury found the violations willful, and the judge doubled the damages. The final judgment: $229 million for 33,000 workers. Auto-deducting meal breaks is like auto-assuming your teenager cleaned their room — it rarely ends well. https://hkm.com/providence-health-services-ordered-pay-over-229-million-wage-violation-verdict/
PTO, Vacation, and Sick Leave: The Benefits Everyone Thinks Are Required (They Aren’t)
Here’s the truth: The FLSA does not require PTO, vacation, or sick leave. Not a single hour. True – the FLSA doesn’t care one bit about your PTO payout drama — but state wage laws sure do. If you promise employees you’ll cash out their unused PTO at termination and then pull a disappearing act when it’s time to pay up, courts will happily treat that broken promise like unpaid wages… and they’ll season it with penalties for extra flavor. If your policy says PTO is paid out at termination, congratulations, you’ve made a legally binding promise. If your policy says PTO is forfeited (lawful in OK, TX, and KS,) that’s fine — as long as it’s written clearly and consistently applied.
Sick Leave vs. PTO vs. Vacation: Why the Labels Matter
The FLSA doesn’t regulate these categories, but courts and state agencies do. Vacation is typically treated as a wage once earned. PTO is treated like vacation unless your policy says otherwise. Sick leave is often treated differently — especially if it’s “use it or lose it.” We’ll dig deeper into how KS, OK, and TX treat these in Part 2.
Case Example: The PTO Payout Problem
In Nguyen v. Bank of America, N.A. (2023), former employees alleged that the bank’s written policy promised payout of unused vacation at termination, but the bank failed to pay accrued balances when employees separated. The lawsuit seeks recovery of unpaid vacation wages and statutory penalties. This is an ongoing case and has not been settled yet. https://www.hayberlawfirm.com/2023/10/13/bank-of-america-worker-sues-for-unpaid-accrued-vacation-time/
Coming Up Next Week: Part 2 — Kansas, Oklahoma, and Texas Wage Laws (a.k.a. “The Plot Thickens”)
Katitus People Strategies offers specialized expertise in HR compliance consulting and possesses local regulatory knowledge, helping regional businesses like yours structure compensation fairly and transparently while minimizing risk. Please email us at info@katitus.org for more information.