FLSA Compliance: What Business Owners Need to Know

Federal wage-and-hour rules remain an important concern for drycleaning and laundry operators as the U.S. Department of Labor (DOL) revisits independent-contractor classification. Employers must comply with applicable federal and state requirements, including paying the higher minimum wage when both laws apply.

Small businesses are not immune to unannounced visits from labor investigators, wage-and-hour audits or lawsuits brought by employees. Understanding the Fair Labor Standards Act (FLSA), keeping accurate records and reviewing employment practices can help operators identify problems before they become costly disputes.

The FLSA’s Four Core Requirements

The FLSA establishes federal standards for minimum wages, overtime pay, recordkeeping and child labor. It covers eligible full-time and part-time employees in both the private and public sectors.

Businesses with annual gross sales of at least $500,000 generally qualify for enterprise coverage when the law’s commerce requirements are met. Employees of smaller businesses may still be individually covered if their work involves interstate commerce, such as regularly communicating with customers or suppliers in other states. A small operation should not assume that its size places it outside the law.

Minimum Wages and Overtime

Covered, nonexempt employees must receive at least one and one-half times their regular rate of pay for hours worked beyond 40 in a workweek. Employers must also comply with any more protective state overtime requirements.

Deductions for uniforms, tools or cash shortages cannot reduce an employee’s pay below the applicable minimum wage or cut into required overtime compensation.

Paying an employee a salary does not automatically make that employee exempt from overtime. The applicable exemption requirements must also be satisfied.

Recordkeeping

The FLSA does not require a particular recordkeeping format or the use of a time clock. It does, however, require accurate identifying, time and payroll information for nonexempt employees. The required information can be organized into the following categories:

1. The employee’s full name, Social Security number, address, occupation, sex and date of birth if younger than 19.
2. The day and time the employee’s workweek begins.
3. Hours worked each day and total hours worked each workweek.
4. The basis of pay, such as hourly, weekly or piece rate, and total daily or weekly straight-time earnings.
5. The regular hourly rate for any week in which overtime is worked.
6. Total overtime earnings for the workweek.
7. All additions to and deductions from wages.
8. Total wages paid each pay period.
9. The payment date and the pay period covered.

These are employer recordkeeping requirements; separate state laws govern what must appear on an employee’s wage statement.

Child Labor

For most nonagricultural employment, the general federal minimum working age is 14, subject to limited exceptions. Workers ages 14 and 15 may work only in permitted occupations and outside school hours. Their schedules generally cannot exceed:

• Three hours on a school day.
• Eighteen hours during a school week.
• Eight hours on a nonschool day.
• Forty hours during a nonschool week.

Work generally must take place between 7 a.m. and 7 p.m. From June 1 through Labor Day, the evening limit extends to 9 p.m.

Federal law generally does not limit the hours that 16- and 17-year-olds may work in nonhazardous occupations. State law may impose additional restrictions. Drycleaning and laundry operators should check both the permitted duties and working hours before assigning work to minors.

What the FLSA Generally Does Not Require

The FLSA generally does not require paid vacation, paid sick leave, severance pay, ordinary meal or rest breaks, premium pay solely for working weekends or holidays, raises, or advance notice and an explanation of termination.

That does not mean these matters are unregulated. Other federal laws, state and local laws, and employment agreements may impose additional obligations. New Jersey, for example, requires earned sick leave under a separate state law. Written policies should clearly explain the benefits and procedures that apply to the business.

Independent Contractors: Federal Changes Do Not Override State Law

In February 2026, the DOL proposed rescinding its 2024 independent-contractor rule and replacing it with an approach similar to the framework adopted in 2021.

The proposal emphasizes two core factors: the nature and degree of control over the work, and the worker’s opportunity for profit or loss through initiative or investment. The DOL materials reviewed for this article continue to identify the measure as a proposed rule. Employers should distinguish proposed changes from requirements already in effect.

A change in federal rules does not eliminate separate state classification requirements. New Jersey, for example, uses an “ABC test” under its unemployment and wage laws. Under that framework, a paid worker is generally presumed to be an employee unless the employer can establish all three parts of the test.

Businesses using workers paid on Form 1099 should review those arrangements carefully. A tax form or an independent-contractor agreement does not, by itself, establish proper classification.

Common Sources of Wage-and-Hour Disputes

Hours cannot be averaged across workweeks. A workweek is a fixed, regularly recurring period of seven consecutive days, or 168 hours. If an employee works 50 hours in one week and 30 in the next, the first week still includes 10 overtime hours—even though the two-week total is 80. Paying employees every two weeks does not change the weekly overtime calculation.

Opening and closing duties count as work. Compensable time generally includes required opening preparations, closing cleanup and other work the employer knows about or permits. Employees should not perform these duties off the clock.

A fixed weekly salary does not eliminate overtime. The proper calculation depends on what the salary covers and whether a particular payment method is legally available.

Under the federal “fluctuating workweek” method, a fixed salary may cover straight-time compensation for all hours worked in a week. This method has specific conditions: hours must fluctuate, the salary must remain fixed despite those fluctuations, the salary must satisfy minimum-wage requirements, and the employer and employee must clearly understand that it covers all straight-time hours worked.

When those conditions are met, the regular rate generally equals the fixed salary plus other includable compensation, divided by the hours actually worked. An additional premium of at least one-half that rate is then due for every hour over 40 because the salary already covers straight-time pay for those hours. This method should not be applied automatically to all salaried nonexempt employees.

For conversion purposes, a monthly salary is multiplied by 12 and divided by 52 to determine its weekly equivalent. A semimonthly salary—paid twice a month—is multiplied by 24 and divided by 52. These conversions do not, by themselves, establish the correct overtime method. State law must also be checked.

Bonuses may affect the overtime rate. The “regular rate” used to calculate overtime generally includes compensation for employment unless a statutory exclusion applies. Promised performance or attendance bonuses usually must be included.

Payments that may qualify for exclusion include:

• Genuine gifts made on special occasions, such as holiday gifts.
• Payments for vacation, holidays or other periods when no work is performed.
• Qualifying business-expense reimbursements.
• Truly discretionary bonuses, where both the decision to pay and the amount remain at the employer’s discretion.
• Payments under qualifying profit-sharing or savings plans and qualifying employer contributions to retirement or insurance plans.

Calling a payment a “discretionary bonus” does not necessarily make it excludable.

State Law Can Increase the Cost of Unpaid Wages

State wage laws may impose greater liability and longer claim periods than federal law.

In New Jersey, an employer may owe unpaid wages plus liquidated damages of up to 200% of the unpaid amount, subject to applicable statutory conditions and defenses. Adverse action taken within 90 days after an employee files a qualifying wage complaint or court claim can create presumptive evidence of retaliation.

New Jersey also allows certain wage claims to reach back six years, compared with the FLSA’s generally applicable two-year period, extended to three years for willful violations. These New Jersey provisions should not be treated as uniform rules nationwide.

Keeping relevant payroll and time records for at least six years is a prudent practice for New Jersey employers, while businesses elsewhere should check their state’s requirements and applicable claim periods.

Retaliation Is a Separate Violation

Firing, disciplining or otherwise penalizing an employee because that person filed a wage complaint or participated in a protected proceeding can create a separate violation. An employer’s response to a complaint can therefore create additional liability beyond the underlying wage dispute.

A Year-End Checklist for Business Owners

Before the end of the year, review the following items:

• Minimum-wage changes: Confirm with the payroll provider that any increase effective January 1, 2027, will apply to work performed beginning on that date—not simply to the first paycheck issued in January.
• Required posters: Update workplace notices to reflect applicable wage changes and other posting requirements.
• Worker classification: Review 1099 arrangements under both federal law and the applicable state test, including the ABC test where required.
• Time and payroll records: Confirm that all required information is maintained and that wage statements satisfy state requirements. Establish a retention schedule appropriate to the business’s jurisdiction.
• Written employment policies: Clearly address vacation and sick leave, meal and rest breaks, holiday pay, termination procedures and final wage payments, consistent with applicable law.
• Minor employees: Verify that both assigned duties and schedules comply with federal and state child-labor rules.
• Nursing employees: Provide required pumping breaks and a suitable private space other than a bathroom.
• Workers’ compensation: Check required coverage, policy status and renewal dates.

Incomplete records, unclear pay arrangements and misclassified workers can turn a manageable issue into an expensive dispute. Reviewing timekeeping, payroll practices, worker classifications and written policies before a problem arises is a practical investment in protecting the business.

This article provides general information and is not legal advice. Consult an employment-law attorney about specific circumstances and applicable federal, state and local requirements.