HR Compliance 101: Charlie the Tuna and the Fair Labor Standards Act (FLSA)

When the FLSA was enacted it’s intention was to provide minimum standards for employees in the U.S. and it’s territories.  One such territory is American Samoa. American Samoa is famous for two things it produces NFL football players and canned Tuna.  It is also an interesting micro-economy that was greatly effected by minimum wage laws.

As the story goes, in 2007 the U.S. passed changes to the FLSA requiring U.S. employers to pay their employees $5.85/hour, but there was an exception made for American Samoa tuna workers which kept their minimum wage at $3.55/hr.  The reason for this is that the island’s tuna canning industry paid a wage that was good when compared to the surrounding island economies, but obviously well below the U.S. standard $5.85.  An increase of this proportion would make the canning operations on American Samoa comparatively too expensive and could drive this industry out.  The non-voting congressional representative from American Samoa had a study performed by the U.S. DOL which stated that increasing the minimum wage to $5.85 in American Samoa would be the same effect as increasing the minimum wage in the main land to $16.50/hr.  The report went on to state that there is concern the increase would cause tuna canneries to close and production would likely be moved outside the U.S.  You can reference the study here.

Despite the study’s warning, in 2009, the U.S. Congress voted to remove the exemption with scheduled increases to take place every few years in $0.40 increments.  In 2009, the minimum wage was increased to $4.36 in American Samoa.  Two years later, Chicken of the Sea closed it’s cannery and moved it’s production.  Sunkist and others have tried to keep the industry going over the past 9 years, as the minimum wage was again increased in 2012 to $4.76 and again in 2015 to $5.16.  The next scheduled increase is in September of 2018.  Currently, there are less than a couple hundred cannery jobs in American Samoa and these are just skeleton crews to maintain the properties and to operate refrigeration units for tuna canneries in  These increases seem like small changes based on our mainland U.S. economy, but it has wreaked havoc in American Samoa’s economy with tuna job losses making up to 45.6% of the total jobs in American Samoa.  It has also had the effect of increasing the cost of living for all citizens of the island.  Ships who before carried tuna off the island are now nearly empty and as such the cost to ship to the island has went up significantly which has increased the cost of all imports.

Minimum Wage

As an employer one of our most important priorities is to properly pay our employees.  This is actually the reason our employee/employer relationship exists.  The employee agrees to work for a period of time for the employer’s interest and the employer agrees to pay the employee.  If either side fails this agreement the relationship will sour and end quickly after. The Fair Labor Labor Standards Act (FLSA) requires employers to meet certain minimum standards when paying employees.  Employers who ignore it will expect a visit from the Department of Labor (DOL) in a short time.

The FLSA is administered by the Wage and Hour Division (WHD) of the DOL.  It establishes a national Minimum Wage, rules for Overtime, defines Hours Worked, requires Recordkeeping and rules for Child Labor.  These rules apply in the private sector as well in Federal, State and local governments.  As with many government regulations there are exceptions and exemptions, so it is good to know when these may be applied as well.

The FLSA has been challenged as unconstitutional in United States v. Darby Lumber Co, 1941 stating the federal government does not have the right to regulate wages in businesses local to one State.  But, the FLSA was upheld by the Supreme Court as constitutional under the Commerce Clause, stating that the U.S. Congress has  the power to regulate employment conditions in both interstate and intrastate operations.

When the FLSA Applies

With that said, the FLSA still does not apply to all businesses.  Basically the FLSA applies to your business if you employee at least two people and you are an “Enterprise” with an annual dollar volume of $500,000 or if your business provides medical or nursing care for residents, schools/preschools or is a government agency.  The odd thing from the previous sentence is that although any school or preschool must pay a minimum wage, the teachers themselves are exempt from this law.  There is no minimum wage for teachers under the FLSA.  You can reference this exemption here.

Otherwise, the FLSA only applies to individual employees who engage regularly in Interstate Commerce.  Examples of employees who are involved in interstate commerce include those who: produce goods (such as a worker assembling components in a factory or a secretary typing letters in an office) that will be sent out of state, regularly make telephone calls to persons located in other States, handle records of interstate transactions, travel to other States on their jobs, and do janitorial work in buildings where goods are produced for shipment outside the State.

If you do not, as a company, have a dollar volume of $500,000 and you do not have employees engaged in Interstate Commerce, then the FLSA does not apply to your employees.  But then, you still have to consider State and local laws as well.  For example in North Carolina, there is a State minimum wage as well as a Federal.  The correct amount is which ever is larger of the two.  Some states do not have a minimum, for example South Carolina does not.  In South Carolina the FLSA is the only minimum wage law referenced.  Some cities even have minimum wage laws, such as San Francisco where the minimum wage is currently $15/hr.

There are also employees who are exempt from the FLSA minimum wage requirement.

The following are examples of employees exempt from both the minimum wage and overtime pay requirements:

  • Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and certain skilled computer professionals (as defined in the Department of Labor’s regulations)
  • Employees of certain seasonal amusement or recreational establishments
  • Employees of certain small newspapers and switchboard operators of small telephone companies
  • Seamen employed on foreign vessels
  • Employees engaged in fishing operations
  • Employees engaged in newspaper delivery
  • Farm workers employed on small farms (i.e., those that used less than 500 “man days” of farm labor in any calendar quarter of the preceding calendar year)
  • Casual babysitters
  • Persons employed solely by the individual receiving services (not an agency, non-profit, or other third party employer) primarily providing fellowship and protection (companionship services) to seniors and/or individuals with injuries, illnesses, or disabilities

The current minimum wage is $7.25/hour (except in American Samoa) and has been the same since July 24th, 2009.  This is the national minimum, but your local state, county or city may increase this through local laws, so it is important to know what the minimum is in your location.  Some jurisdictions in California have more than doubled this to $15/hour in a few locations.  If there are no local or State regulations, the FLSA applies at the Federal level.  This is actually the case in most of the U.S.

An interesting concept when considering minimum wage, is one of Cash Wages.  In some scenarios, an employee may make some portion of their wages from the employer and some other portion of their wages from other sources such as, in the case of a waiter or waitress, tips.  Minimum cash wages refer to the employer’s portion of the wages  the employee must receive.  The minimum wage is still $7.25, but the employer is only required to pay $2.13/hour with the other wages ($5.12/hr) expected to come from tips.  The employee is still required to be compensated at $7.25, so if the tips fall short the employer must pay more than $2.13 to make up the difference so the employee realizes the full $7.25/hr in earnings.

Another “piece” to consider is when when employee’s are compensated in ways other than by the hour.  Employees may be paid by the piece or by the mile as long as the rate being paid is compliant to the minimum wage they would make in the same amount of time using hourly  compensation.  For example, an employee paid $1 per piece would need to work at a rate of at least 7.25 pieces per hour or the the employer would have to make up the difference for slow production work.

Conclusion

‘I wish you could do something to help us girls… We have been working in a sewing factory… and up to a few months ago we were getting our minimum pay of $11 a week…. Today the 200 of us girls have been cut down to $4 and $5 and $6 a week.’   This note was passed to President Roosevelt while he was campaigning and he later commented to a reporter, ‘something has to be done about the elimination of child labor and long hours in starvation wages.’  Seventy years later it is still the law of the land and it firmly established a ‘living wage’ which has been changed nearly 30 times since it was enacted in 1938.

 

 

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