Understanding the Fair Labor Standards Act (FLSA) in Public Sector Payroll & HR

If you’re a payroll or HR professional, understanding FLSA is essential! For public sector organizations, it's extra challenging because of the unique employee classifications, special exemptions, and variable work schedules. And there's so much to it... where do you start?

At SSI, we work with local governments and other public sector agencies all the time, so we know how to get you the information you need to stay compliant. In this blog, we’ll cover:

• What the FLSA is

• Common misconceptions

• Why it's important to stay compliant

• FLSA overview

• FAQs

• Our recent FLSA webinar takeaways

• Best practices for public sector agencies

• Resources for further research

That way, you can be confident of your policies and procedures, pass audits with ease, and face legal disputes with certainty.

(That being said, none of this should be taken as firm legal advice. Please consult a labor attorney for strict FLSA compliance.)

What is the FLSA?

The Fair Labor Standards Act (FLSA) is one of the most critical labor laws governing workplaces in the United States. It lays out essential standards for minimum wage, overtime pay, recordkeeping, and child labor. While its application is broad, public sector agencies face unique challenges in ensuring compliance.

FLSA was administered by the U.S. Department of Labor’s Wage and Hour Division (WHD), but it's not just a set of guidelines. It's also a legal framework that public agencies have to follow to avoid pricey penalties and lawsuits. There are provisions that specifically impact fire protection, law enforcement, and compensatory time. And you have to understand the nuances of the law to manage compliance effectively.

Overwhelmed yet? FLSA compliance can feel like navigating a legal labyrinth. What’s exempt? What counts as overtime? Can comp time replace overtime? If you’ve asked these questions, you’re not alone. Plenty of people get it wrong.

In fiscal year 2024, the Department of Labor (DOL) recovered over $202 million in back wages for nearly 152,000 workers due to FLSA violations, with the average recovery being $1,333 per worker. While this is actually an improvement from the year before, it should still be concerning. You don't want to be one of the violators. So let's cover some misconceptions that get people into trouble.

Common Misconceptions About the FLSA

There are plenty of myths floating around when it comes to the FLSA. And you may unknowingly operate under false assumptions (perhaps because of all the changes since its inception in 1938). Let’s bust some of the biggest myths and get the story straight:

• Myth: “All salaried employees are exempt from overtime.”

  • Truth: Just because an employee is salaried doesn’t mean they’re exempt. Exempt status depends on salary thresholds and job duties, not just payroll classification.

• Myth: “If an employee works overtime without approval, we don’t have to pay them.”

  • Truth: FLSA mandates that employers pay for all hours worked—approved or not. You can discipline employees for unauthorized overtime, but you still have to pay them.

• Myth: “Paid leave counts toward overtime calculations.”

  • Truth: Overtime is calculated based on actual hours worked, not paid time off (unless agency-specific policies dictate otherwise).

• Myth: “Public employers don’t have to pay overtime if they offer comp time.”

  • Truth: While public agencies can offer comp time instead of overtime, it must accrue at 1.5 times the overtime hours worked. Plus, there are limits on how much comp time an employee can accrue.

Understanding these misconceptions helps payroll and HR teams avoid major compliance pitfalls. But what are the actual pitfalls? What are the consequences of non-compliance? And why is it so important to follow the guidelines?

The Importance of Staying Compliant

Compliance is about protecting your agency and its employees. Violating the FLSA can have serious consequences, including:

• Financial penalties – Back pay, liquidated damages, and civil money penalties can add up quickly.

• Lawsuits – Employees can take legal action, and the Department of Labor can enforce compliance through audits and legal proceedings (see picture below).

• Reputational damage – Agencies that mishandle wages risk losing public trust and employee morale.

• Operational disruptions – Investigations and legal battles can pull resources away from your agency’s vision.

Avoiding FLSA violations isn’t just about avoiding fines—though money is a big factor—it’s about fostering a fair and compliant workplace that values employees. And that ultimately creates a better organization that serves your citizens well.

Number of FLSA lawsuits filed by state in 2023, courtesy of Seyfarth's 2023 FLSA Litigation Metrics & Trends.

Now that you know why following the law is important (you probably already knew that), let's look at what the law actually entails.

FLSA Overview for Public Sector Agencies

You need to follow general FLSA guidelines while also adhering to specific provisions that are unique to you. State laws may differ, but here are some federal requirements:

• Minimum Wage – The federal minimum wage is $7.25 per hour, but state and local laws may require higher rates.

• Overtime Pay – Non-exempt employees must be paid 1.5 times their regular rate for hours worked beyond 40 hours per week. Exempt employees are NOT eligible for overtime. The formula to compute the regular rate is: Total compensation in the workweek (except for statutory exclusions) ÷ Total hours worked in the workweek = Regular Rate for the workweek. 

• Compensatory Time (Comp Time) – Public agencies can provide comp time instead of overtime pay, but it must accrue at 1.5 hours for every hour of overtime worked (maximum 240 hours for most employees, 480 hours for emergency personnel).

• Law Enforcement & Firefighters – Special overtime rules apply under the 207(k) exemption, setting different work period thresholds.

• Exempt vs. Non-Exempt Employees – Employees must meet specific salary and job duty tests to qualify as exempt. Common public sector exemptions: Executive, Administrative, Professional, Computer, and Highly Compensated Employees.

• Recordkeeping Requirements – Agencies must keep accurate records of employee work hours, classifications, and pay structures. This includes pre/post-shift activities (e.g., logging into systems, putting on gear). And you must keep records for at least three years (timecards, payroll records, etc.).

• Breaks & Meal Times - Meal breaks are unpaid if the employee is completely relieved of duties. Short breaks (5–20 min) must be paid as work time.

Understanding these nuances is essential for avoiding non-compliance issues. States can have stricter rules (e.g., daily overtime, higher minimum wage, required meal/rest breaks). But employers must follow whichever law is more favorable to the employee.

Frequently Asked Questions About the FLSA

Obviously, there are questions, because each organization is different. Here are the most frequently-asked ones. 

• How is overtime pay calculated, and how do additional pay types (bonuses, longevity pay, etc.) impact it?
  The formula is vertime pay is calculated as 1.5 times an employee’s regular rate of pay for all hours worked over 40 in a workweek. When employees receive lump-sum payouts such as longevity or education bonuses, these may need to be factored into the regular rate of pay before calculating overtime.
  For example, if an employee receives a bonus, you may need to allocate that bonus over the total hours worked in a year to determine its impact on the overtime rate. If you’re unsure whether a payment should be included, consult your payroll system or a labor attorney.
  Since the overtime rate is based on the "total compensation in the workweek" there are scenarios where an employee may have a different overtime rate for each workweek.
  

• How do sick leave and overtime interact?
  Only actual hours worked count toward overtime calculations. If an employee takes 8 hours of sick leave and works 42 hours in a week, they are only eligible for 2 hours of overtime (42 - 40), not 10. However, some collective bargaining agreements or agency policies may allow for more generous treatment.

• Do law enforcement and firefighters receive overtime differently?
  Yes. Public safety employees, including police officers and firefighters, often qualify for the 207(k) exemption, which allows them to have a different overtime threshold based on a longer work period (e.g., 28 days instead of 7 days). For example, instead of earning overtime after 40 hours in a single week, law enforcement may not qualify until they exceed 171 hours in a 28-day cycle.
  If you manage payroll for law enforcement or fire personnel, verify that your agency is applying the correct exemption and work period calculations.

• How should we handle employees working non-standard shifts or flex schedules?
  FLSA requires that overtime be calculated on a weekly basis unless an exemption applies. If employees work non-standard shifts, such as rotating or compressed schedules, payroll teams must ensure that overtime is still calculated based on total hours worked per FLSA-defined workweek.

• What about paid-on-call firefighters?
  The classification of paid-on-call firefighters depends on multiple factors, including how often they work, whether they have set schedules, and whether they qualify under the 207(k) exemption. If they work over 40 hours in a week and do not fall under an exemption, they may be entitled to overtime pay.
  For employees on alternative work schedules (e.g., 4x10-hour shifts), overtime applies only if the total weekly hours exceed 40. It’s important to document agreements about work schedules and track hours diligently.

• Are seasonal and part-time employees eligible for overtime?
  Yes. Unless an exemption applies (such as the recreational worker seasonal exemption), seasonal and part-time employees are entitled to overtime pay when they work over 40 hours in a work week.

• How should exempt employees track hours, and can they be charged PTO in increments of less than a full day?
  While exempt employees do not qualify for overtime, employers may track their hours for recordkeeping purposes. Additionally, it is generally permissible to charge exempt employees’ paid time off (PTO) balances in increments of less than a full day without jeopardizing their exempt status. However, this should be clearly stated in the agency’s handbook.

• What is FLSA Safe Harbor language, and why does it matter?
  Safe Harbor language is an essential policy in an employer’s handbook that allows employees to report incorrect paycheck deductions. If an employer improperly deducts wages from an exempt employee, Safe Harbor policies provide a way to correct the issue and minimize liability.

• Does an employee handbook take precedence over FLSA rules?
  No. FLSA sets the legal minimum for wage and hour rules. An employee handbook can enhance FLSA requirements (e.g., paying overtime after 36 hours instead of 40) but cannot override federal law to provide fewer protections than FLSA mandates.

Key Takeaways from Our FLSA Webinar

To provide even deeper insights, we hosted an expert-led webinar, "Navigating FLSA Compliance in the Public Sector," featuring a distinguished panel of experts:

• Anne Duprey – Labor Attorney at Frost Brown Todd

• Steve Black – Partner & HR Practice Line Leader at Brixey & Meyer

• Derek Shaul – President of Right Stuff Software

• Rich Sypeck – Product Owner at Software Solutions (SSI)

• Moderated by Linda Jones – VP of Administration at SSI and former village Finance Director

These industry professionals provided valuable insights into the complexities of FLSA compliance, common challenges, and practical solutions for public sector payroll and HR teams. Here are some key insights from the discussion:

• FLSA Basics for the Public Sector

• • The FLSA establishes rules for minimum wage, overtime pay, recordkeeping, and exemptions.

  • Public sector employers have unique considerations, including compensatory time and special exemptions for police, fire, and emergency personnel.

• Exempt vs. Non-Exempt Employees

• • Anne Duprey clarified that exempt employees do not qualify for overtime under FLSA but must meet salary and job duty tests.

  • Common Misclassification Issues: Some supervisors or "lead" workers may be mistakenly classified as exempt when their duties don’t meet FLSA’s criteria.

  • Best Practice: Agencies should regularly review job descriptions to ensure proper classification.

• Overtime Pay & Compensatory Time

• • Steve Black emphasized that overtime is based on actual hours worked—leave time (e.g., sick leave, vacation) does not count toward the 40-hour threshold.

  • Derek Shaul explained that overtime pay calculations must include certain bonuses, shift differentials, and other additional payments.

  • Compensatory Time: Public agencies can offer comp time instead of overtime pay, but it must accrue at 1.5 hours per overtime hour worked and be tracked carefully.

• Special Considerations for Law Enforcement & Firefighters

• • Derek Shaul discussed the 207(k) exemption, which allows longer work periods for police and firefighters before they qualify for overtime.

  • Example: Instead of the usual 40-hour workweek rule, some law enforcement personnel may not earn overtime until they exceed 171 hours in a 28-day cycle.

• Recordkeeping & Compliance Audits

• • Accurate recordkeeping is essential to defend against wage and hour disputes.

  • Derek Shaul recommended electronic time-tracking solutions to ensure proper documentation.

  • Failure to comply with FLSA rules can result in severe financial penalties, including back pay, damages, and legal fees.

• Best Practices for Payroll & HR Teams

• • Regularly audit employee classifications to ensure compliance.

  • Train supervisors to understand FLSA rules regarding overtime and comp time.

  • Use technology to track time, automate overtime calculations, and maintain payroll records.

  • Review and update personnel policies to reflect current FLSA regulations.

The panelists emphasized that proactive compliance is the best way to avoid legal trouble. Agencies should regularly review their payroll processes, employee classifications, and timekeeping records to stay aligned with FLSA requirements.

Best Practices for Staying FLSA Compliant

Now that you're overloaded with information (sorry, not sorry), here are some best practices you an utilize at your company.

1. Conduct Regular FLSA Audits – Proactively identify potential compliance risks. Make sure that exempt vs. non-exempt status is correctly determined based on FLSA criteria.

2. Monitor Comp Time Accruals – Prevent excess accruals that trigger liabilities.

3. Invest in Time Tracking Solutions – Automated systems improve accuracy. Utilize time-tracking software to document actual hours worked.

4. Train Supervisors and Payroll Teams – Educate leadership on overtime rules, comp time, and recordkeeping best practices. Supervisors should understand FLSA guidelines.

5. Update Employee Handbooks – Keep your handbook, policies, and procedures aligned with FLSA standards. 

6. Consult Legal Experts – When in doubt (or even if you're pretty confident) seek guidance from labor law professionals. They can save you a lot of hassle and money in the long run.

Resources for Further Research

Like we said before, this article is an overview and by no means firm legal advice. You'll have to do a bit of your own research or find a law firm to help. For more information, check out these trusted sources:

• Frost Brown Todd – www.frostbrowntodd.com

• Brixey & Meyer – www.brixeyandmeyer.com

• Right Stuff Software – www.rightstuffsoftware.com

• Software Solutions (SSI) – www.mySoftwareSolutions.com

• U.S. Department of Labor (FLSA) – www.dol.gov/agencies/whd/flsa

• U.S. Office of Personnel Management, Fact Sheet: How to Compute FLSA Overtime Pay - https://www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets/how-to-compute-flsa-overtime-pay/ 

• Congress.gov, The Fair Labor Standards Act (FLSA): An Overview - https://www.congress.gov/crs-product/R42713 

• Society for Human Resources Management (SHRM) - https://www.shrm.org/topics-tools/employment-law-compliance 

Conclusion

Following FLSA guidelines is about fostering a fair and legally compliant work environment, and saving money. By keeping informed, utilizing technology, and implementing best practices, you can confidently manage FLSA requirements. And we'll be here to help.

Or leave a comment below.

Sources:

U.S. Code Title 29, Chapter 8 Fair Labor Standards Act (FLSA)- https://uscode.house.gov/view.xhtml?path=/prelim@title29/chapter8&edition=prelim 

U.S. Department of Labor, Wage and Hour Division (WHD) - https://www.dol.gov/agencies/whd/flsa 

SSI Expert-led FLSA Webinar on 3/14/2025 - https://mysoftwaresolutions.zoom.us/rec/play/8h4VzFd8bt9_T8CmR9g5B1ssck3FMwbSzGtfKut9qSf3ZADG5hA6-XIS80TdMN54ZwKt0wB4PmUSXoDU.NhtJT0snuRK7yRZQ 

HR Morning, DOL’s New Report: FLSA Mistakes Cost a Whopping $149.9M in FY 2024 - https://www.hrmorning.com/news/dol-new-report-flsa-mistakes/ 

USDOL, Impact in Fiscal Year 2024 - https://www.dol.gov/agencies/whd/data#:~:text=the%20U.S.%20Treasury.-,Impact%20of%20Back%20Wages,workers%20in%20high%2Dviolation%20industries. 

Seyfarth's 2023 FLSA Litigation Metrics & Trends - https://www.jdsupra.com/legalnews/2023-flsa-litigation-metrics-trends-4777793/