FLSA compliance challenges may be increasing today because of recent changes in overtime rules from the Department of Labor (DoL); however, the Fair Labor Standards Act (FLSA) of 1938 grew out of a very specific historical context. So as Labor Day approaches, it's worth exploring the circumstances surrounding the creation of the FLSA. The FLSA was part of President Franklin D. Roosevelt's New Deal, which supported labor rights as a way to boost worker incomes and stimulate the economy stuck in the Great Depression.
Here's a look at how these regulations came to light, and how employers now handle the compliance challenges that came with them.
The FLSA Backdrop: The Great Depression
President Roosevelt was a strong proponent of a stimulative approach to public policy, favoring governmental intervention in the private sector to create economic demand. It was English economist John Maynard Keynes who pioneered these stimulative theories — using public spending to create economic demand.
In the presidential election of 1932, the nation rejected incumbent President Herbert Hoover and his belief that the depressed economy would recover if free market forces were allowed to play out without governmental interference. Instead, the nation elected FDR, with the hope he could "fix" the stalling economy.
President Roosevelt turned to Keynesian stimulus in the form of the New Deal. Bloomberg describes the strategy as follows: "Keynes said that when companies don't want to invest and consumers don't want to spend, government must break the dangerous cycle by stepping up its own spending or cutting taxes, either of which will put more money in people's pockets."
Through the adoption of the FLSA, President Roosevelt not only increased public spending but also worked to expand the rights of labor and improve working conditions.
Improving the Rights and Conditions of Workers
According to the DoL, the FLSA outlawed child labor, set a minimum wage of 25 cents per hour, established a shorter workweek of 44 hours and required businesses to pay overtime. The law sought to balance the relationship between workers and employers that had been cutting wages and reducing purchasing power.
President Roosevelt feared the FLSA would be overturned by a conservative Supreme Court. The business community also opposed the new law, arguing that it interfered with the contractual relations between employers and employees and that the new law would increase labor and compliance-related costs. Indeed, the Supreme Court previously used "freedom of contract" to declare minimum wage laws unconstitutional, much to President Roosevelt's frustration. But the Supreme Court abruptly changed its tune in 1937 and upheld a state minimum wage law for the first time — a decision that paved the way for the FLSA a year later.
Despite the removal of constitutional roadblocks, the proposed FLSA still faced strong opposition in Congress and among the nation's business leaders. They claimed it would force them to lay off workers and break labor budgets, in addition to adding compliance-related complexity to an already-damaged business sector.
During this period, U.S. organizations simply lacked the experience or capability to accurately track worker's hours, and the fear it would be nearly impossible to remain compliant with these groundbreaking regulations was rampant. The present changes should cause organizations much less apprehension than the first iteration of the FLSA. Through time and labor management (TLM) systems, it is now possible for organizations to install a dependable and adaptable infrastructure of FLSA compliance systems, leaving the guesswork and uncertainty organizations faced in 1938 well in the past.
New FLSA Overtime Rules Coming Soon
While the new overtime rules, which take effect on December 1, 2016, increase FLSA compliance challenges, they're also in line with the original and stimulative intent of the FLSA of 1938 — because a "hard day's work should lead to a fair day's pay," as explained by the Office of the Press Secretary for President Obama.
The new rules will make millions of new workers eligible for overtime and will require businesses to review and possibly reclassify a portion of its workforce and diligently track the time of more employees than ever before. Never have your TLM systems been placed under such stress, or been more important to managing your bottom line and compliance efforts.
Labor Day was one of the first legislative acts to honor labor and their accomplishments, and through the FLSA and other workers' rights initiatives we continue to put labor first. Of course, just knowing the history of the FLSA of 1938 will not make your efforts to comply with these regulations any easier. Luckily, the manner in which organizations carry out their compliance process has changed drastically since the inception of the FLSA. TLM and other FLSA compliance-related systems are now mature, easily accessible and highly-effective, making it possible for organizations to quickly adapt to changes in labor laws now and confident they will be prepared for any possible alterations in the future.