Miclassifying Employees; Another Form Of Wage Theft

Last month I wrote about wage theft by companies against their employees. That column focused on the ways unscrupulous employers cheated workers out of legally mandated overtime pay as well as hourly wages. However there is another form of wage theft that is also very pervasive in the United States right now. That is misclassifying employees as exempt or as independent contractors.

According to the Fair Labor Standards Act, hourly employees should be classified as non exempt. That means that hourly employees are covered under the Fair Labor Standards Act regarding their hours and wages. That act mandates that when a worker works more than 40 hours in one week or more than eight hours in one day; the employer is required to pay them overtime at a rate of 150% of their hourly wage for the time worked exceeding eight hours in one day or forty hours in one week. The Wage and Hour Division of the Department of Labor is charged with enforcing this rule.

However some employers classify hourly workers as “exempt” from the Fair Labor Standards Act. But for an employee to be classified as “exempt”; that employee must be paid as a salaried employee with a fixed salary instead of an hour wage based on the hours that they are working.

However some hourly paid workers can be classified as exempt under certain circumstances. Those circumstances are that the training and education required for the job is such that it is a “professional” position. This applies to many nurses and teachers as well as many accountants who work for many companies. Another requirement for being classified as “exempt” is that the position involves supervisory or managerial duties. Therefore a head cashier who supervises other cashiers in a retail store could be classified as exempt since their job involves supervising other employees.

However some companies misclassify hourly employees as exempt even though their job does not involve supervisory duties or special education and certification. In a recent case, the nation’s largest private employer, Wal Mart, was cited and fined over misclassifying employees as exempt when they should have been classified as non exempt. This Department of Labor ruling cost Wal Mart $4.3 million dollars in back pay, denied overtime and fines for the aggrieved employees. You could read about this settlement at this link: http://www.girardgibbs.com/walmart-misclassifcation-settlement/ .

Another means of misclassifying employees that is commonly done is to classify them as independent contractors. As independent contractors, the workers are not employees of the company at all, but actually self employed. By classifying employees as independent contractors, the company does not have to pay workers compensation premiums for those workers, nor does the company have to pay the required matching social security and Medicare taxes. In addition the employer does not have to cover those workers for their group health insurance or pension plan.

Again, enforcement of this falls under the Department of Labor. But the Internal Revenue Service also can enforce this as well. The IRS has a set of 20 guidelines to determine whether a worker is an independent contractor or is an actual employee. Those guidelines can be found on the IRS’s web site.

The major distinction is how much control over the workplace, hours of work and pay there is between the company and the worker. True independent contractors either work on a project basis or are free to offer their services to any other company that the worker chooses. Independent contractors are free to determine the days and hours that they work for a particular employer. However there may be strict standards for working hours.

When I was working as an independent contractor conducting employee benefit meetings and enrollments, I was required to be set up at a certain time and place. But I was there for a specific project and when the assignment was concluded, I was on to my next assignment. I was free to choose which assignments I would take and was paid either on a per diem basis or based on the assignment. Sometimes I was reimbursed for my travel and lodging expenses, sometimes not.

If anyone believes that they have been misclassified by their employer, they can go to the Department of Labor and file a complaint or ask for an investigation. If anyone believes that they may be misclassified as an independent contractor, they can request form SS-8 from the IRS. The form can be completed by the worker and submitted to the IRS and the IRS will make a determination.

No one should worry about retaliation by the employer or company since one cannot be penalized for exercising their rights under the law. If a company retaliates against a worker who files a complaint, whether legitimate or not, the employer or company is liable for damages in court. 

Lee Kamps

Lee has been working with Medicare, Medicaid and private health insurance since he began working at the Erie County Welfare Department in January 1973 where a major part of his job was determining eligibility for Medicaid. He went into the private insurance business in 1977 with Prudential Insurance Company and within a short time had become one of the company’s top sales agents. In 1982, he was promoted into management where he managed two field offices and as many as thirteen sales agents. After leaving Prudential in 1986, Lee decided to become more focused on health insurance and employee benefits. He has advised many local employers on how to have a more cost effective employee benefit program as well as conducted employee benefit meetings and enrollments for many area employers. The companies Lee has worked with ranged from small “mom and pop” businesses to local operations of large national companies. Lee received his B.S. degree from Kent State University where he has been active in the local alumni association. He has completed seven of the ten courses toward the Certified Employee Benefit Specialist designation. He has taught courses in employee benefits and insurance at Cleveland State University and local community colleges. In addition, Lee is an experienced and accomplished public speaker. He has been a member of Toastmasters International where he achieved the designation of “Able Toastmaster – Silver” in 1994. He has also served as a club president, Area Governor and District Public Relations Officer in Toastmasters as well as winning local speech contests. Lee has also been a member of the Greater Cleveland Growth Association’s Speaker’s Bureau where he was designated as one of the “official spokespeople for the Rock and Roll Hall of Fame” prior to the hall’s opening in 1995. He has given talks and presentations before many audiences including civic organizations, AARP chapters and many other community groups. With the implementation of the Medicare Modernization Act (Medicare drug bill) in 2006, Lee has shifted his focus to Medicare and helping Medicare beneficiaries navigate the often confusing array of choices and plans available. As an independent representative, Lee is not bound to any one specific company or plan, but he can offer a plan that suits an individual person’s needs and budget. In addition, Lee is well versed in the requirements and availability of various programs for assistance with Medicare part D as well as Medicaid. While he cannot make one eligible, he can assist in the process and steer one to where they may be able to receive assistance.

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Volume 8, Issue 5, Posted 8:46 AM, 05.03.2016