FLSA Overtime Rules for Trade Businesses

Why this matters

The Fair Labor Standards Act (FLSA) governs overtime pay for non-exempt employees. The classic violation in trade businesses: a contractor pays a technician a flat weekly "salary" intended to cover 40 hours, but the technician routinely works 50, with no separate overtime calculation. Under FLSA, this employee is owed overtime for the hours over 40, calculated based on their regular rate. The Department of Labor recovers tens of millions per year from contractors who got this wrong. The fines plus back wages plus liquidated damages can sink a small business. Understanding the actual rules - and the limited exemptions - is essential. The contractor who pays per FLSA pays for compliance once; the contractor who doesn't may pay 3 to 5 times that in back wages, penalties, and legal fees.

What FLSA requires

FLSA (29 USC 201 et seq., 29 CFR 778):

• All non-exempt employees must be paid overtime (1.5 x regular rate) for hours over 40 in a workweek
• "Workweek" is a 7-consecutive-day period
• Overtime is per workweek, not per pay period
• Regular rate includes most non-discretionary pay (commissions, bonuses, shift differentials)

The default: every employee is non-exempt unless specifically exempt. Burden is on the employer to prove exemption.

Who is exempt

The major FLSA exemptions:

Executive exemption

• Primarily managing the business or a department
• Directing the work of 2+ employees
• Authority to hire, fire, or influence those decisions
• Salary basis: a moderate cost/week minimum (a substantial cost/year)

A foreman who supervises 2 to 3 employees AND directs their work might qualify. A technician who happens to "lead" a 2-person team while doing the same work as them does not qualify.

Administrative exemption

• Office work directly related to management or business operations
• Discretion and independent judgment on significant matters
• Salary basis: a moderate cost/week minimum

A bookkeeper, office manager, or dispatcher with significant decision authority might qualify. A receptionist or estimator following established procedures does not qualify.

Professional exemption

• Work requiring advanced knowledge (typically requiring a bachelor's degree)
• Engineering, accounting, law, medicine

Not common in trade businesses.

Outside sales exemption

• Primary duty is making sales
• Regularly works away from the employer's place of business

A sales rep who travels to customers' homes / businesses to sell could qualify; an inside salesperson who works only at the office typically does not.

Why most trade workers are non-exempt

A standard service technician:

• Performs labor-trade work
• No supervision authority
• Limited discretion (work is per established procedures)
• Often hourly or pieceworker

This worker is non-exempt. They must receive overtime for hours over 40 per workweek.

What "regular rate" actually means

The overtime rate is 1.5 x "regular rate". Regular rate is NOT necessarily the hourly rate the employee thinks they're being paid.

Regular rate includes:

• Hourly wage
• Piece-rate earnings (production-based pay)
• Commissions (non-discretionary)
• Non-discretionary bonuses (performance bonuses)
• Shift differentials

Regular rate excludes:

• Discretionary bonuses (truly at employer's discretion)
• Reimbursements (for expenses)
• Holiday gifts (not tied to work)
• Premium pay for working beyond standard hours (in some cases)
• Profit sharing (typically)

For an employee paid a modest cost/hour plus a moderate monthly performance bonus:

• • a moderate bonus = a significant cost
• Overtime rate = 1.5 x regular rate (which now includes the bonus contribution)

The bonus increases the regular rate for overtime calculation. Many contractors miss this.

Common overtime violations in trade businesses

"Salary" for non-exempt workers

A technician paid a flat weekly salary intended to cover 40 hours but actually works 50.

• Under FLSA, the salary covers only 40 hours
• 10 hours of overtime at 1.5x the regular rate = 15 additional hours of pay
• Effective hourly rate = weekly salary divided by 40
• Overtime owed = effective rate x 1.5 x 10 extra hours
• Back wages owed: per workweek
• Liquidated damages: up to 2x the back wages
• Total per workweek of violation: up to 3x the unpaid overtime + legal fees

For a contractor who paid this way for 2 years (104 workweeks), total exposure is the per-week amount multiplied across two years, plus legal fees. Multiplied across multiple affected employees, the back-wages liability commonly reaches a six-figure sum.

Compensatory time instead of overtime

Some contractors offer "comp time" instead of overtime pay. In the private sector, this is illegal under FLSA. Only public-sector employers can give comp time.

Day rate / piece rate without overtime

A contractor pays a fixed day rate per worker regardless of hours. The worker works 6 days at 10 hours each = 60 hours. The flat day-rate pay was meant to cover the work.

Under FLSA:

• The day rate (divided by hours actually worked) is the regular rate
• Hours over 40 require overtime at 1.5x that regular rate
• Worker worked 60 hours; the first 40 are at straight rate, the next 20 must be paid at 1.5x
• Back wages owed: the difference between what was paid and what should have been paid for those overtime hours
• Plus liquidated damages (often equal to the back-wages amount)

Failure to track hours

Many contractors don't track tech hours accurately. Under FLSA:

• Employer must keep accurate time records
• If records are missing or inaccurate, the employee's good-faith recollection prevails
• An audit will assume the employee's claim is correct unless the employer can prove otherwise

This is the most expensive violation: a year of unrecorded hours can lead to a settlement based on the employee's claim.

Misclassifying as independent contractor

Some contractors classify workers as 1099 independent contractors to avoid FLSA. The DOL test:

• Independent contractor: economic independence; provides own tools; works for multiple clients; bears risk of profit/loss; not directly supervised
• Employee: economically dependent on the employer; uses employer's tools; works for one client primarily; doesn't bear risk; is supervised

A "tech" working full-time for one contractor with the contractor's tools, supervision, and uniform is an employee, not an independent contractor. Misclassification is one of the most-enforced violations.

How to comply

1. Track all hours worked

• Time clock (manual or digital)
• Time sheets with daily entries
• GPS tracking (some service businesses)
• All time worked, including travel time between job sites

2. Pay overtime on hours over 40 per workweek

References

• 29 USC 201-219 (Fair Labor Standards Act).
• 29 CFR 778 (Overtime Compensation).
• 29 CFR 541 (Defining White-Collar Exemptions).
• DOL Wage and Hour Division Fact Sheets.
• DOL FLSA Exemption Tests.
• State wage and hour laws (some states more stringent than federal).
• Manuall internal: Universal Hiring First Technician, Universal Payroll Setup Service Business.