Wage and Hour Laws FAQ

Answers to some common questions about paying workers, from the minimum wage to overtime requirements.

Do the minimum wage laws apply to small businesses?

Yes, for the most part. The Fair Labor Standards Act (FLSA), the federal law that requires payment of the minimum wage, applies to all businesses that have $500,000 or more in annual sales. Even if your sales don't reach this threshold, your employees may still be covered if they work in "interstate commerce" -- commerce between states. Although this term might sound fairly restrictive, courts have interpreted it very broadly to include sending or receiving mail from out of state, making interstate phone calls, or handling goods that have moved interstate.

Even if your business is so small and local that it doesn't fall within these parameters, you may be subject to your state's minimum wage law. Some cities and counties also impose minimum wage requirements on businesses within their borders.

Do I have to pay minimum wage to employees who receive tips?

It depends on how generous your customers are. Under federal law, as long as an employee routinely earns at least $30 per month in tips, you can pay the employee as little as $2.13 an hour. However, the amount you pay plus the tips the employee actually earns must bring the employee's earnings up to minimum wage level. If the employee's total earnings fall short of the minimum wage, you must make up the difference.

Some states, including California, don't allow employers to pay tipped employees less than the minimum wage. And some states require employers to pay a higher hourly amount to tipped employees (though still less than the state or federal minimum wage).

For more information on minimum wage laws, see When Do I Have to Pay the Minimum Wage?

Do I have to pay my managers overtime?

If they are truly management employees, probably not. Under federal law, executive employees are not entitled to overtime pay. An executive employee is one who earns at least $455 a week, routinely supervises two or more employees, has the right to hire, fire, or promote workers, and manages the business or one of its subdivisions. So, if your managers supervise a department and manage at least two employees, they are not entitled to overtime. But if you have simply tacked a glorified title onto an otherwise low-level job -- if you are in the habit of calling your janitorial staff Assistant Managers of Sanitation, for example -- you are required to pay overtime.

Can I give my employees time off instead of paying them overtime?

It depends on how much time off you give them, and when. Private employers are not allowed to give compensatory or "comp" time -- one hour off for every hour worked -- because this type of arrangement cheats employees out of their higher overtime pay. However, there are a couple of ways to rearrange an employee's work schedule during a pay period to avoid paying out overtime.

Do I have to pay my employees for travel time?

You have to pay them for travel time that is part of their job duties. The time employees spend commuting from their homes to the workplace is not paid. However, if an employee is required to spend time traveling after the work day begins -- to call on customers or to purchase goods and equipment, for example -- you must pay them for this time. If an employee takes a business trip to another city, you may have to pay for time spent in transit; the rules depend on the length of the trip and when the employee travels.

Can I dock an employee's pay for failing to meet a production quota?

Yes, but you might pay a big price. If an employee is exempt from the overtime rules (that is, the employee fits into an exception to the rules and is therefore not entitled to overtime pay for extra hours worked), pay docking is allowed only in limited circumstances. Generally, if you subtract money from an exempt employee's pay check based on the quality or quantity of work the employee does, the employee is no longer exempt and is entitled to earn overtime. And, if you make a regular habit of improper pay docking, you might owe overtime to every other employee in that job classification. .