Is your business too small to have to pay overtime?

The Fair Labor Standards Act, like other federal economic regulation, applies to businesses engaged in interstate commerce. It covers enterprises—businesses—which gross at least $500,000 a year.

The $500,000 threshold would seem to exclude at least the smallest businesses from FLSA requirements. Take your neighborhood specialty toy store or bookseller—they may very well gross less than $500,000 a year, which would seem to exempt those enterprises from federal wage and hour regulation, right?  

Wrong - or least, very likely wrong in today’s Internet commerce age. Under the FLSA, even if your business is not covered by the law, individual employees may fall under the law’s protection “in any workweek when they are individually engaged in interstate commerce. . . .”

Almost every business has a website nowadays. And with those websites, businesses that were formerly as local as local could be advertise and sell nationwide—even worldwide. For example, one local specialty toy store—quite a small business; the whole shop is maybe 12’ x 30’—has online shopping available on its website and notes that it will ship anywhere in the continental U.S.

However, order entry and fulfillment don’t happen by themselves—some employee has to do them. That employee is picking up orders from the Internet and then shipping goods interstate—in other words, there’s an employee engaged in interstate commerce at the corner toy store. Even if the business as a whole is exempt from the FLSA, there’s at least one employee who may come under the Act—at least in “any workweek” when he or she is handling interstate orders.

Think that interpretation is too expansive? The Department of Labor doesn’t. The Department consistently interprets individual employee coverage under the FLSA to include any “employee such as an office or clerical worker who uses a telephone, facsimile machine, the U.S. mail, or a computer e-mail system to communicate with persons in another state” and notes that “Interstate commerce includes such activities as transacting business via interstate telephone calls, the Internet or the U.S. Mail. . . .”

In short, even for the smallest, most otherwise-local businesses, having an e-commerce website or taking out-of-state orders can bring employees under the aegis of the FLSA, requiring payment of overtime when appropriate. The employee(s) transacting interstate business may be exempt from the Act under other grounds—for example, it often may be the owner him- or herself who does this. However, if a business has an Internet sales presence of any kind, they may have employees covered by the FLSA even if the business would be otherwise exempt.

What’s the bottom line? Having an online sales presence may effectively gut the $500,000 threshold for coverage under the FLSA, at least for some employees.
 

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Comments (3) Read through and enter the discussion with the form at the end
Marylee Abrams - February 4, 2010 11:04 AM

Great reminder for all "small businesses." I find clients stop at the $500,000.00 threshold and overlook the matter of interstate commerce, and the shipping clerk in the back room sending out sales. Businesses are so accustomed to using technology for sales, but they forget the overtime issue which results.

ERIC PARKER - July 26, 2013 8:03 AM

DOES A SMALL BUSINESS THAT EMPLOYEES SAY 15 OR LESS EMPLOYEES HAVE TO PAY TIME AND A HALF (OVERTIME PAY) TO HOURLY WORKERS WORKING IN EXCESS OF 40 HOURS? LOCATED IN THE STATE OF PA.

Devora L. Lindeman, Esq. - July 31, 2013 11:21 AM

Eric – maybe. It doesn’t depend on the number of employees. It depends on the volume and scope of the business, and on the individual employees’ tasks.

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