The Fair Labor Standards Act has been around since 1938, but employers keep making the same costly mistakes with it. The law requires minimum wage and overtime pay, but the details are where things get complicated. Most violations aren’t intentional — they come from misunderstanding or outdated assumptions about how pay rules actually work.
Here are six recurring FLSA errors that continue to show up in workplaces, along with practical notes on how to avoid them.
The regular rate of pay trap with bonuses
One of the most common problems involves calculating the “regular rate of pay” for overtime for non-exempt employees. A collective action lawsuit was filed this week against a Pennsylvania employer over this exact issue. The allegation: the company didn’t include non-discretionary bonuses in the regular rate calculation.
Discretionary bonuses — like a holiday gift — don’t need to be included. Non-discretionary bonuses are different. If a bonus is promised in advance or tied to measurable criteria — do X, get Y — it is almost certainly non-discretionary. These payments must be allocated back over the workweeks they were earned in, which can increase overtime owed.
Related: CFTC, DOJ Charge Software Engineer With Insider Trading
If a non-exempt employee hasn’t worked any overtime, the bonus doesn’t trigger extra pay. But if they did work overtime during the measured period, the regular rate goes up, and so does the overtime they are owed.
Risk: Back pay exposure can compound quickly, especially in collective actions where the same bonus structure applies to large groups.
Overtime isn’t calculated by pay period
Another persistent misconception is that overtime is determined based on a pay period — say, two weeks — rather than a single workweek. Some employers think if an employee hasn’t worked more than 80 hours in a biweekly period, no overtime is owed.
That is incorrect. The FLSA requires overtime to be calculated on a workweek basis, not biweekly or semi-monthly. Employers who rely on payroll system defaults or informal averaging can create systemic underpayment problems without realizing it.
Salary doesn’t mean exempt
“They’re salaried. They don’t get overtime.” This is a common misunderstanding. Paying someone a salary doesn’t automatically make them exempt from overtime. To qualify for the white-collar exemptions — executive, administrative, or professional — employees must meet specific duties tests and a salary threshold.
Related: Appellate Courts Reinforce Evidence Reweighing Limits
We routinely see misclassification where employees are paid a salary but their actual duties don’t match exemption requirements. Risk: Misclassification claims often involve multiple years of unpaid overtime, plus liquidated damages and attorneys’ fees.
Commission-only doesn’t bypass wage laws
“Oh, they’re commission only. They don’t get a salary.” That works if the employee qualifies as outside sales. If not, it likely violates the FLSA. Some employers assume commission-only pay eliminates minimum wage and overtime requirements. That is typically not correct unless a specific exemption applies.
Unless the employee qualifies for the outside sales exemption, they must still receive minimum wage and overtime if they work more than 40 hours in a regular workweek. Employers using commission-only models need to verify the exemption applies — and if it doesn’t, track time accurately. Risk: Unpaid overtime bills can get steep fast.
Remote sales and the outside sales exemption
With remote work on the rise, some employers assume employees who work from home and do sales qualify for the outside sales exemption. Not necessarily. To meet that exemption, an employee must be customarily and regularly engaged in making sales away from the employer’s place of business.
Related: Energy Department Updates Loan Program Rules
An employee’s home office is typically considered one of the employer’s places of business. So a remote salesperson who mainly works from home probably doesn’t qualify. Risk: Misclassifying remote sales employees as exempt can create significant overtime exposure, especially when employees work long hours but don’t track time.
Independent contractor misclassification
One of the highest-risk mistakes is assuming a worker can be classified as an independent contractor just because they prefer it, sign an agreement, or have a side gig. Under the FLSA, classification depends on the economic realities of the relationship — not the label.
Key factors include the degree of control the employer has, the worker’s opportunity for profit or loss, and how integral the work is to the employer’s business. Even if a worker requests independent contractor status, a government audit won’t care about that preference. Risk: Misclassification can trigger liability for unpaid minimum wage, overtime, tax issues, and exposure under multiple laws.
These issues rarely exist in isolation. During audits or litigation, employers often discover multiple overlapping compliance problems — especially where pay practices, classification decisions, and new work models intersect. Most of these risks can be reduced with periodic review of job duties, pay structures, and timekeeping practices, particularly before launching new compensation models or expanding remote work arrangements.
Leave a Reply