The Fair Labor Standards Act does not apply to all employers. Whether the FLSA reaches a given business depends on two separate tests: an enterprise test tied to revenue and interstate commerce, and an individual test tied to what a specific employee does. Hospitals, schools, and government agencies are covered automatically regardless of size, and household employers have their own rules. Everyone else has to be measured against the tests.
The $500,000 Enterprise Test
Most private employers are pulled in through what the statute calls enterprise coverage. A business is a covered enterprise when it meets two conditions at once: annual gross revenue of at least $500,000, and employees who are engaged in interstate commerce or who handle goods that have moved across state lines.1Office of the Law Revision Counsel. 29 USC 203 Definitions The statute uses the plural “employees,” so at least two workers need that commercial connection. The connection itself is easy to satisfy. Someone stocking shelves with products shipped from another state counts, just as a driver hauling freight across a state line counts.
Once a business crosses the threshold, every employee in the organization is covered, including staff whose own work is entirely local. The employer owes at least the federal minimum wage of $7.25 per hour and overtime at one and one-half times the regular rate for hours over 40 in a workweek.2U.S. Department of Labor. Minimum Wage3eCFR. 29 CFR Part 778 Overtime Compensation Many states set their minimum wage higher than $7.25, and employers in those states pay whichever rate is greater.
Splitting a company into smaller shells does not avoid the threshold. When different business units share common control or a unified business purpose, courts add their revenues together.4Office of the Law Revision Counsel. 29 USC 203 Definitions
What Counts Toward the $500,000
The figure is gross receipts before expenses or taxes, with limited exclusions. Retail excise taxes listed separately on a receipt do not count.1Office of the Law Revision Counsel. 29 USC 203 Definitions Credits for returned merchandise, rebates, and discounts are generally excluded, and so are internal transactions between different locations of the same enterprise.5eCFR. 29 CFR 779.259 What Is Included in Annual Gross Volume
Nonprofits
Nonprofit status does not itself provide a shield, but it changes how the revenue math works. Contributions, membership dues, and charitable donations used to further the mission do not count toward the $500,000.6U.S. Department of Labor. Fact Sheet 14A Non-Profit Organizations and the FLSA Only revenue from ordinary commercial activity gets included: running a gift shop, charging fees for services, selling merchandise. A nonprofit with $3 million in donations but only $200,000 in commercial revenue would not meet the enterprise threshold on that basis. Coverage would then depend on whether individual employees qualify.
Employers Covered Regardless of Revenue
Three categories of employers must follow the FLSA no matter how much money moves through them.1Office of the Law Revision Counsel. 29 USC 203 Definitions
- Hospitals and residential care institutions for the sick, the elderly, or people with mental illness or disabilities, whether operated for profit or not.
- Preschools, elementary and secondary schools, schools for children with disabilities or gifted children, and colleges and universities, public or private.
- Federal, state, and local government bodies, including the U.S. Postal Service and interstate governmental agencies.
A small rural school district or a county clerk’s office follows the same wage and overtime rules as a large corporation. Neither tight budgets nor nonprofit status changes that.
When Individual Workers Are Covered Even If the Business Isn’t
A business can fall below $500,000 and outside the automatic categories and still owe federal minimum wage and overtime to certain employees. Individual coverage applies when a specific worker is personally engaged in interstate commerce or in producing goods for interstate commerce.1Office of the Law Revision Counsel. 29 USC 203 Definitions The test moves off the employer’s revenue and onto what the person does during the workweek.
Under this pathway, the employer only owes protections to the qualifying workers, not the entire staff. Consider a ten-person landscaping company with $300,000 in annual revenue. One employee regularly orders supplies from out-of-state vendors and processes credit card payments. That worker is individually covered. The other nine, whose duties stay local, are not covered through this route.
The tasks that create individual coverage have to be regular and recurring. A single out-of-state phone call does not do it. Routinely communicating with clients or suppliers in other states does.
Activities That Establish an Interstate Commerce Connection
The Department of Labor reads interstate commerce broadly. In a modern economy, most businesses touch it somewhere. Common activities that establish the connection include:
- Shipping products to customers in other states, or receiving inventory and supplies that originated out of state.
- Regularly making phone calls, sending emails, or holding video meetings with people in other states.
- Processing credit or debit card payments, which route electronic data across state lines.
- Traveling to other states for work, even occasionally.
None of this has to be the main part of the job. An office manager whose primary duty is scheduling, but who also orders supplies online from an out-of-state vendor each week, has enough of a connection for individual coverage. What matters is that the activity is a recurring part of the work rather than a one-time errand.
Household Employers
People who hire domestic workers, such as nannies, housekeepers, home health aides, or personal care attendants, sit under a separate rule. A domestic worker is covered if they earn at least a specified annual cash wage threshold (adjusted each year) from an employer, or if they work more than eight hours total in any workweek for one or more employers.7eCFR. 29 CFR Part 552 Application of the Fair Labor Standards Act to Domestic Service The eight-hour rule is what catches most household employers. Hire a housekeeper for two four-hour shifts in a week and the threshold is met.
Two exceptions matter. Casual babysitters, meaning people who babysit irregularly and not as a primary occupation (generally under 20 hours per week), are excluded from both minimum wage and overtime. Live-in domestic employees must receive at least minimum wage for all hours worked but are exempt from overtime.
Coverage Is Not the Same as Overtime Eligibility
Being covered by the FLSA does not automatically mean every worker gets overtime. The law exempts certain salaried employees in executive, administrative, professional, computer, and outside sales roles from overtime pay. These exemptions require meeting both a salary test and a duties test, and failing either one puts the employee back into overtime protection. Following the vacatur of the Department of Labor’s 2024 update, the salary threshold currently in effect is $684 per week, or $35,568 annually, with a separate threshold of $107,432 for highly compensated employees.8U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemption From Minimum Wage and Overtime Protections Under the FLSA Job titles do not decide the question. What the person actually does day to day is what counts, and misclassifying an employee as exempt is one of the most common FLSA violations.9U.S. Department of Labor. Fact Sheet 17A Exemption for Executive, Administrative, Professional, Computer, and Outside Sales Employees Under the FLSA
Independent Contractors Are Not Covered
The FLSA protects employees, not independent contractors. A business that legitimately uses contractors avoids minimum wage, overtime, and recordkeeping obligations for those workers. The Department of Labor uses an “economic reality” test to sort out who is really in business for themselves and who is economically dependent on an employer, and the label the parties put on the relationship carries little weight.10U.S. Department of Labor. Notice of Proposed Rule Employee or Independent Contractor Status Under the Fair Labor Standards Act
The two factors that carry the most weight are how much control the employer exercises over the work and whether the worker has a genuine opportunity for profit or loss based on their own initiative and investment. When those two point in different directions, the DOL weighs the level of skill the work requires, how permanent the relationship is, and whether the work is an integral part of the employer’s business. The written contract does not settle it. The actual day-to-day arrangement does. A business that treats contractors like employees can end up owing back wages and liquidated damages for every affected worker.