Fair Labor Standards Act (FLSA) 2026: Complete Guide

The Fair Labor Standards Act (FLSA) is the federal law that sets minimum wage, overtime pay, recordkeeping, and child labor standards for most private and public sector employees in the United States. Enacted in 1938 and codified at 29 U.S.C. § 201 et seq., the FLSA is administered and enforced by the Wage and Hour Division (WHD) of the US Department of Labor.

In 2026, the FLSA continues to require a federal minimum wage of $7.25 per hour, overtime pay at 1.5 times the regular rate for hours worked over 40 in a workweek, and exempt status only for employees meeting a $684 per week ($35,568 per year) salary threshold plus a duties test. The Department of Labor’s 2024 rule raising the exempt threshold was vacated by a federal court in November 2024, so the 2019 rule remains in force nationally.

This 2026 guide to the Fair Labor Standards Act covers: the FLSA’s core provisions, who is covered (enterprise and individual coverage tests), minimum wage requirements at the federal level and how they interact with state and local rates, the overtime rule and exemption tests, exempt vs non-exempt classification, child labor provisions, independent contractor classification under the 2024 DOL rule, recordkeeping obligations and penalties for violations.

The Fair Labor Standards Act (FLSA) was enacted on 25 June 1938 as the foundational federal labour statute in the United States. It was the final major piece of New Deal legislation under President Franklin D. Roosevelt and established the first federal minimum wage (25 cents per hour), the 40-hour workweek, overtime pay requirements, and restrictions on child labour. The statute is codified at 29 U.S.C. § 201 et seq., and its implementing regulations are found at 29 C.F.R. Part 510 and following.

The FLSA is administered and enforced by the Wage and Hour Division (WHD) of the US Department of Labor, with additional enforcement authority for some provisions shared with the Equal Employment Opportunity Commission (EEOC) and state labour agencies. The FLSA sets a national floor: where state or local laws provide greater protections, those more favourable rules apply to the employee.

The FLSA has four primary provisions:

The FLSA has been amended 22 times since 1938, most notably the Portal-to-Portal Act (1947), the Equal Pay Act (1963), the Age Discrimination in Employment Act (1967), the Family and Medical Leave Act (1993), and multiple minimum wage increases. The most recent federal minimum wage increase took effect on 24 July 2009, making the current 17-year freeze the longest in the statute’s history.

What the FLSA does not regulate is equally important. The FLSA does not require paid vacation, holiday pay, sick leave, severance pay, meal or rest breaks, premium pay for weekend or holiday work, pay raises, pay stubs, termination notices, or limits on daily or weekly hours for adult workers. These matters are governed by state law, individual employment agreements, or collective bargaining contracts.

The FLSA applies to employees through two coverage frameworks: enterprise coverage and individual coverage. A worker is covered if either test is satisfied.

Enterprise coverage applies to any business with at least $500,000 in annual gross sales or business volume that also engages in interstate commerce. All employees of a covered enterprise are protected by the FLSA, regardless of their individual job duties. Certain types of enterprises are always covered regardless of revenue, including:

• Hospitals and residential medical care facilities
• Schools, preschools, and institutions of higher education
• Government agencies at the federal, state, and local level
• Businesses providing nursing care for residents

Individual coverage applies when an employee’s own job duties involve interstate commerce, regardless of employer size or revenue. Examples include:

• Handling goods that have moved in interstate commerce (most retail and warehouse work)
• Communicating with persons in other states (phone, email, mail)
• Driving across state lines for work
• Working with materials, equipment, or payment systems that cross state lines

In practice, the vast majority of US workers are covered by the FLSA. The Department of Labor estimates that more than 143 million workers across nearly every industry fall under FLSA protection. Genuinely uncovered workers are rare and typically include some agricultural workers on small farms, certain executive and outside sales personnel who also meet exemption criteria, and employees of some truly local businesses below the $500,000 threshold.

Coverage applies regardless of part-time or full-time status. The FLSA protects temporary, seasonal, and part-time workers at the same rates as full-time employees. It does not, however, apply to true independent contractors, volunteers, interns who meet the primary beneficiary test, and certain trainees in specific exempt categories.

The federal minimum wage under the FLSA is $7.25 per hour as of 2026. This rate has been in effect since 24 July 2009, the longest period without a federal increase since the FLSA was enacted. The FLSA also sets a federal tipped minimum wage of $2.13 per hour, provided tips bring total compensation to at least $7.25 per hour (the “tip credit” system). If tips fall short, the employer must make up the difference.

The FLSA federal minimum is a floor, not a ceiling. Where state or local minimum wage laws set higher rates, those higher rates apply to covered workers. As of 2026, the District of Columbia has the highest minimum wage at $17.95 per hour, Washington State is highest among states at $17.13, and 30 states plus DC have rates above the federal $7.25 floor. 20 states still match the federal minimum.

For a complete breakdown of federal, state, and city-level rates including the full list of 2026 state minimum wages, tipped employee rules by state, federal contractor minimums under Executive Order 14026 ($17.75 in 2026), and local ordinances, see our companion guide to the minimum wage in the United States.

The FLSA also establishes subminimum wage categories for specific worker groups:

State laws may further restrict these subminimum wages. California, Washington, and several other states do not permit the federal $4.25 youth rate and require young workers to receive the full state minimum. Always apply the highest of the federal, state, and local rates applicable to the worker and work location.

The FLSA requires covered non-exempt employees to be paid overtime at 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek. A “workweek” is a fixed and regularly recurring period of 168 hours (seven consecutive 24-hour periods) designated by the employer. The workweek does not need to align with a calendar week or pay period.

The regular rate is the hourly rate an employee is paid for non-overtime hours. It must include not only base hourly wages but also non-discretionary bonuses, shift differentials, commissions, and certain on-call payments. Discretionary bonuses, gifts, vacation pay, and certain expense reimbursements are excluded from the regular rate.

Overtime must be paid in cash, not as compensatory time off, except for:

• Public sector employees (state, local, and federal government workers) who may accrue comp time at 1.5 hours per overtime hour, up to 240 or 480 hours
• Certain exempt professional and administrative positions that meet the duties test

The FLSA does not limit the total number of hours an adult employee may work in a day or week, only the rate at which overtime must be paid. There is no federal requirement for double-time pay. Some states (notably California) require overtime after 8 hours in a workday and double-time after 12 hours, which supersedes the federal 40-hour weekly standard where more favourable to the worker.

Certain workers are entirely exempt from overtime under the FLSA. The most common exemptions are for executive, administrative, and professional (EAP) employees (the “white-collar exemptions”), outside sales employees, certain computer professionals, certain transportation workers under the Motor Carrier Act, and specific categories of agricultural and domestic workers. To qualify for the EAP exemptions, an employee must satisfy three separate tests: salary basis, salary level, and duties.

One of the most important FLSA compliance obligations is correctly classifying employees as exempt (not entitled to overtime) or non-exempt (entitled to overtime). Misclassification is the single most common source of FLSA litigation and enforcement action.

All employees are non-exempt by default. An employee is only exempt from overtime if the employer can prove the employee satisfies all three of the following tests:

Test 1: Salary Basis Test

The employee must be paid a predetermined, fixed salary that is not subject to reduction based on variations in the quality or quantity of work performed. An employer generally cannot dock an exempt employee’s pay for partial-day absences. Deductions for full-day absences for personal reasons or disciplinary suspensions are permitted under specific FLSA rules. Improper deductions can cause loss of the exemption for the entire pay period and potentially back wages for all similarly situated employees.

Test 2: Salary Level Test

The employee must earn at least the FLSA-mandated minimum salary. In 2026, the federal salary threshold is $684 per week ($35,568 per year). The Department of Labor issued a Final Rule in April 2024 that would have raised this to $1,128 per week ($58,656 per year) effective 1 January 2025, but on 15 November 2024 the US District Court for the Eastern District of Texas vacated the rule nationwide. The 2019 threshold of $684 per week remains in effect.

The highly compensated employee (HCE) threshold, which permits a more relaxed duties test for very high earners, is $107,432 per year in 2026 under the 2019 rule. Several states apply higher salary thresholds than the FLSA:

Test 3: Duties Test

The employee’s job duties must primarily involve executive, administrative, professional, outside sales, or computer-related work as defined by FLSA regulations. Meeting the salary tests alone is not enough: a worker paid $75,000 per year who does not perform qualifying duties is still non-exempt and entitled to overtime.

The main exempt categories under the FLSA are:

• Executive exemption: Primary duty is managing the enterprise or a department, directs the work of at least two full-time employees, and has authority to hire or fire (or recommendations are given significant weight)
• Administrative exemption: Primary duty is office or non-manual work directly related to management or general business operations, and includes the exercise of discretion and independent judgment on significant matters
• Professional exemption: Work requiring advanced knowledge in a field of science or learning customarily acquired by prolonged specialised instruction (learned professionals) or creative artistic work
• Computer employee exemption: Systems analysts, programmers, software engineers, and similar roles paid at least $684 per week (federal) or $58.85 per hour in California
• Outside sales exemption: Employees whose primary duty is making sales or obtaining orders/contracts away from the employer’s place of business (no salary test applies)

Paying a “salary” instead of hourly wages does not make an employee exempt. Calling someone a “manager” or giving them a fancy title does not make them exempt. The actual work performed determines classification.

Distinguishing between employees (covered by the FLSA) and independent contractors (not covered) is one of the most frequent sources of FLSA disputes. Effective 11 March 2024, the Department of Labor’s Final Rule on Employee or Independent Contractor Classification replaced the 2021 rule and restored a six-factor economic reality test.

The six factors under the 2024 DOL rule are:

1. Opportunity for profit or loss depending on managerial skill
2. Investments by the worker and the potential employer
3. Degree of permanence of the work relationship
4. Nature and degree of control by the potential employer
5. Extent to which work is integral to the potential employer’s business
6. Skill and initiative of the worker

No single factor is dispositive. The test considers the totality of the circumstances, examining whether the worker is economically dependent on the employer (employee) or in business for themselves (contractor). The 2024 rule explicitly rejected the 2021 approach, which had given greater weight to just two factors (control and opportunity).

In addition to the FLSA test, some states apply stricter tests. California’s ABC Test under Assembly Bill 5 (AB5) is the most restrictive: a worker is presumed to be an employee unless the hiring party can prove all three prongs:

1. A: The worker is free from the control and direction of the hiring entity
2. B: The work performed is outside the usual course of the hiring entity’s business
3. C: The worker is customarily engaged in an independently established trade

Massachusetts, New Jersey, and Illinois apply similar ABC-type tests. New York and several other states use multi-factor common law tests. Misclassifying an employee as a contractor triggers liability for unpaid minimum wage, unpaid overtime, unpaid payroll taxes (Social Security, Medicare, unemployment, state disability), interest, and civil penalties. The IRS applies its own 20-factor common law test for tax purposes, and a single worker can be an employee for tax purposes while being an independent contractor under state wage-hour law.

The FLSA places strict limits on the employment of workers under 18. These rules are enforced by the Wage and Hour Division and vary by age group and type of work.

Certain occupations are always considered hazardous and prohibited for workers under 18: operating power-driven machinery, roofing, excavation, work in slaughterhouses and meat processing, operating most motor vehicles, logging, mining, manufacturing of explosives, work involving radioactive substances, and jobs involving wrecking and demolition. Some agricultural work has its own age rules that differ from non-agricultural jobs.

State laws often provide additional child labour protections stricter than the FLSA. Many states require work permits for minors, restrict occupations beyond federal rules, or impose tighter hour limits during the school year. Employers hiring workers under 18 must comply with both federal and state rules, following whichever is more protective.

Violations of the FLSA’s child labour provisions carry civil money penalties up to $15,138 per violation (adjusted annually for inflation), and $68,801 per violation if the violation causes serious injury or death to a minor. Criminal prosecution is available for willful violations.

The FLSA requires employers to maintain specific records for each non-exempt employee. Records must be preserved for at least 3 years for payroll records, collective bargaining agreements, and sales/purchase records, and at least 2 years for wage computation records (time sheets, work schedules, records of additions to or deductions from wages).

Required records include:

• Employee’s full name and Social Security number
• Home address including zip code
• Birth date if under 19
• Sex and occupation
• Time and day of week when the employee’s workweek begins
• Hours worked each day and total hours worked each workweek
• Basis on which employee’s wages are paid (hourly, weekly, piecework)
• Regular hourly pay rate
• Total daily or weekly straight-time earnings
• Total overtime earnings for the workweek
• All additions to or deductions from the employee’s wages
• Total wages paid each pay period
• Date of payment and pay period covered

Employers must also display an official FLSA poster in a conspicuous place in all establishments where covered workers are employed, outlining FLSA requirements. The poster is available free of charge from the Department of Labor.

Recordkeeping failures themselves can be violations. Missing or inadequate records also undermine an employer’s defence in any subsequent wage-hour dispute. In FLSA litigation, where an employer’s records are incomplete, courts generally accept the employee’s reasonable estimate of hours worked.

FLSA violations carry substantial civil and criminal penalties. The Department of Labor enforces the FLSA through administrative action, and employees may bring private lawsuits (individually or as collective actions) to recover unpaid wages.

The statute of limitations for FLSA claims is two years from the date of the violation, extended to three years for willful violations. Many states extend these limits further under state law: California and New York both allow three years minimum, with additional claims available for six years under state breach of contract theories.

The Department of Labor also operates the Payroll Audit Independent Determination (PAID) program, a voluntary compliance program that allows employers to self-audit their pay practices, identify potential overtime or minimum wage violations, calculate back wages owed, and pay affected employees. Employers who complete PAID are not assessed liquidated damages for the identified violations. PAID does not cover child labour violations.

The most common FLSA violations that trigger enforcement action are:

• Misclassifying non-exempt employees as exempt (and therefore not paying overtime)
• Misclassifying employees as independent contractors (1099 misclassification)
• Failing to pay for off-the-clock work, pre-shift preparation, or post-shift wrap-up
• Improper tip credit claims (notice failures, invalid tip pools)
• Deductions from wages for uniforms, tools, or cash shortages that bring pay below minimum
• Paying a “salary” that hides actual overtime hours
• Rounding time in a way that consistently disadvantages employees
• Failing to include non-discretionary bonuses in the regular rate for overtime calculation

Any international company hiring US employees must comply with the FLSA from day one, even when hiring a single remote worker. The FLSA applies to any employer with enterprise coverage or any individual employee engaged in interstate commerce, which essentially includes all US-based remote knowledge workers for non-US companies.

There are three main options for hiring US workers while maintaining FLSA compliance:

Option 1: Establish a US subsidiary or branch

Forming a US LLC or corporation, registering with the IRS for an Employer Identification Number (EIN), registering with each state employment tax authority where employees work, and running US payroll requires significant setup. Timeline is typically 8 to 16 weeks. The US entity is directly responsible for FLSA compliance including minimum wage, overtime, recordkeeping, and child labour rules for all employees.

Option 2: Employer of Record (EOR)

An EOR is a US-registered entity that formally employs the worker on your behalf. The EOR is the legal employer of record and assumes primary responsibility for FLSA compliance, including proper classification of exempt vs non-exempt, overtime calculation, recordkeeping, federal and state payroll tax withholding, workers’ compensation, and unemployment insurance. Typical setup: 1 to 3 weeks. Typical cost: $400 to $900 per employee per month. The EOR also handles state and local minimum wage compliance automatically when employees work across multiple jurisdictions.

Option 3: Independent contractor engagement

Engaging US workers as 1099 independent contractors avoids FLSA coverage because contractors are not employees. However, this is high risk: the 2024 DOL rule applies a six-factor economic reality test, and California’s AB5 ABC test, Massachusetts’ similar ABC test, and IRS rules can all trigger misclassification liability. If the worker performs ongoing, full-time work under your direction, FLSA classification almost certainly applies regardless of how the relationship is labelled.

For international companies hiring one to 10 US employees, or for 6 to 24 month projects, an EOR is almost always the fastest and lowest-risk option for ensuring FLSA compliance. For longer-term operations or larger teams, direct US incorporation eventually becomes more cost-effective. Many companies use an EOR to enter the US market and transition to a subsidiary once they have 10+ permanent US employees. See our Best Employer of Record in the United States guide for provider comparisons.

Apply the FLSA plus the most favourable state and local rules

The FLSA is a federal floor, not a ceiling. Where state or local laws provide greater worker protections (higher minimum wage, daily overtime, stricter exemption tests, longer statute of limitations), those rules supersede the FLSA for employees in those jurisdictions. Multi-state employers must apply the rule most favourable to each worker based on their physical work location.

Use the $684 per week threshold for exempt classification in 2026

The 2024 DOL rule raising the federal exempt threshold to $1,128 per week was vacated by a federal court in November 2024. The 2019 threshold of $684 per week ($35,568 per year) remains in effect. Several states (California, Washington, New York, Colorado, Maine) set higher thresholds that supersede the federal rule.

Pass all three tests for exempt status

Exempt classification requires satisfying the salary basis test, the salary level test, and the duties test. Paying a “salary” does not automatically exempt an employee from overtime. Calling someone a “manager” does not make them exempt. Audit your classifications annually and maintain documentation of the duties analysis for each exempt role.

Classify workers correctly under the 2024 DOL rule

The 2024 economic reality test uses six factors and examines the totality of the circumstances. For ongoing, full-time work under your direction, the worker is almost certainly an employee regardless of a 1099 designation. California’s ABC test is even stricter, making contractor status extremely difficult to establish for integrated work. When in doubt, classify as an employee.

Maintain records for at least 3 years

FLSA recordkeeping requires preserving payroll records for 3 years and time records for 2 years. In any wage-hour dispute, incomplete records favour the employee. Automated time tracking, payroll systems, and consistent documentation practices are the best defence.

Consider an EOR for multi-state US hiring

An EOR automates FLSA compliance across states, handles exempt/non-exempt classification, manages overtime calculations, maintains records, and ensures the correct federal or state minimum wage applies based on each worker’s physical work location. For international companies without a US entity or with fewer than 10 US employees, this is the lowest-risk path to compliance. Compare providers in our Best EOR United States guide.