The Fair Labor Standards Act (FLSA) establishes the rules for minimum wages, overtime, recordkeeping, child labor, and worker classification. Remaining compliant in the oil and gas industry is critical for protecting your business and employees' rights. Failing to comply has cost companies thousands to millions in payback and penalties. Understanding and adhering to FLSA regulations is a company’s legal obligation and an essential component of sustainable and ethical operations.
Ensuring compliance with the FLSA can present significant challenges for companies relying heavily on contractors and day-rate workers. Misclassifying workers or improperly calculating overtime payments hold serious risks such as lawsuits, audits by the Department of Labor (DOL), and potential harm to the organization’s reputation. It’s imperative to have a thorough understanding of the relevant standards to ensure compliance and mitigate these risks effectively.
What is the FLSA, and Why Does it Matter?
The FLSA, enacted in 1938, is a federal statute that ensures employees receive equitable compensation while safeguarding them from unfair pay practices and substandard working conditions. This legislation applies to employers with a minimum of two employees and an annual revenue of $500,000 or more, as well as those engaged in interstate commerce.
The FLSA is administered by the Wage and Hour Division (WHD) of the Department of Labor (DOL) and is supervised by the Secretary of Labor. The Act established the following mandates:
- Employees must be paid at least $7.25 per hour (federal minimum wage)
- Non-exempt employees are entitled to overtime pay (time-and-a-half) for any hours worked beyond 40 in a week
- Employers must accurately track and record hours worked to ensure compliance
Yet these rules aren't always straightforward for companies in oil and gas, where long shifts, rotational schedules, and contractor-heavy workforces are standard.
Exempt vs Non-Exempt Employees
Under the FLSA, when it comes to overtime, employees fall into one of two categories: exempt or non-exempt. Exempt employees do not qualify for overtime pay, while non-exempt employees must receive overtime wages (time-and-a-half) for any hours worked beyond 40 hours a week. Exemption status isn’t determined by how someone is paid but by their job duties, salary level, and whether they meet specific exemption tests.
This distinction between exempt and non-exempt is critical in the oil and gas industry. Field workers perform physically demanding tasks, often logging long hours in remote locations, making proper classification essential. Most oilfield workers are non-exempt, meaning they’re legally entitled to overtime pay. This is because the FLSA’s exemptions, often called “white-collar exemptions,” typically apply to executive, administrative, or professional roles—categories that don’t include the manual, labor-intensive (blue-collar) positions common in oil and gas.
Given the rise in oil and gas employment over the past decade, the U.S. Department of Labor and plaintiffs’ attorneys have increased their scrutiny of wage practices, leading to a surge in FLSA-related lawsuits. The burden of proof falls on the employer to justify an exemption. If found non-compliant, employers face significant financial and reputational consequences.
FLSA Compliance Challenges in the Oil & Gas Industry
As mentioned briefly above, oil and gas work is characterized by demanding schedules, remote worksites, and a substantial reliance on contractors and subcontractors. These factors can complicate compliance with FLSA provisions concerning employee classification, overtime pay, and recordkeeping requirements.
1. Worker Classification: Employee or Independent Contractor?
One of the industry's most significant risks is misclassifying workers as independent contractors when they should be classified as employees.
Why does this matter? The FLSA overtime pay rules do not extend to workers classified as independent contractors. However, a contractor may be misclassified as independent if they perform work under strict company control, such as following set schedules, using company equipment, or receiving direct supervision, they may legally qualify as an employee.
2. Day-Rate Pay Structures and Overtime Issues
Many oilfield workers are paid a flat day rate, meaning they earn the same amount regardless of hours worked. However, under the FLSA, paying a day rate doesn’t exempt workers from overtime pay. If they work over 40 hours in a work week, they’re still entitled to overtime pay unless they meet specific exemption criteria and their wages are modified to reflect a guaranteed weekly salary.
Some companies assume that paying higher day rates covers overtime obligations, but this is untrue. Employers may be liable for up to three years of unpaid overtime wages, attorney fees, and additional penalties if the DOL or a court concludes that an employee was misclassified and entitled to overtime compensation.
3. Recordkeeping and Compliance Audits
The FLSA requires employers to maintain accurate records of hours worked and wages paid. These records should include the employee’s name, social security number, address, hours worked, and pay basis, among other relevant details.
Many oil and gas companies, especially those relying on manual time tracking or outdated payroll systems, encounter challenges in fulfilling this obligation. Also, while the responsibility primarily lies with the employer, it’s equally important for employees to diligently monitor their workweeks to ensure compliance with FLSA overtime regulations.
Without solid records defending an FLSA claim becomes exceedingly difficult. A single employee complaint has the potential to initiate a thorough audit by the Department of Labor.
For more details on the FLSA, please refer to the U.S. Department of Labor’s WHD Fact Sheets.
What Happens If You Don’t Comply?
Non-adherence to FLSA regulations can lead to severe outcomes, including:
- Wage Lawsuits & Back Pay - Companies found in violation often owe two to three years' worth of unpaid overtime per affected worker, as well as liquidated damages and legal fees.
- DOL Investigations - A single complaint can lead to a broad, company-wide audit, disrupting operations and leading to costly settlements or litigation.
- Reputational Damage - Lawsuits and penalties can lead to negative press, contract loss, and difficulty attracting top talent.
In recent years, prominent employers in the oil and gas sector have faced multiple settlements related to violations concerning employee misclassification and unpaid overtime of the FLSA. Compliance with these regulations is imperative; the financial repercussions of non-compliance significantly outweigh the costs of properly adhering to the legal standards.
How Bedrock Can Help - Are Your Oil & Gas Contractors FLSA Compliant?
At Bedrock, we specialize in recruitment and workforce management for the oil and gas industry. With years of experience supporting companies across upstream and midstream operations, we understand the challenges businesses face. Our tailored solutions ensure contractors are classified correctly, paid fairly, and compliant with the FLSA.
Why Choose Bedrock?
- Industry Expertise - We specialize in recruiting skilled engineering and technical professionals for oilfield operations while navigating the labor challenges unique to the sector.
- Compliance Assurance - Our teams ensure that all assignments adhere to FLSA, EEO, FMLA, DOL, and 1099 guidelines, safeguarding your business from potential legal pitfalls.
- End-to-End Solutions - From recruitment to payroll management, we provide comprehensive services that streamline your operations while prioritizing compliance.
By partnering with Bedrock, you will receive more than recruitment support; you will secure peace of mind knowing your workforce complies with federal labor laws. Contact us today to learn how we can support your hiring needs