Independent Contractor Misclassification To Avoid Paying Overtime
Independent contractor misclassification may seem like an easy way for an employer to save money and avoid overtime. However, there are consequences for this kind of misrepresentation. According to the United States Department of Labor (DOL), workers are entitled to certain pay protections, such as minimum wage and overtime. These protections are found in the Fair Labor Standards Act (FLSA). If there is a question about how an employee is classified, the Wage and Hour Division will step in to evaluate the situation. An employer could face serious repercussions for denying their employees the critical benefits they are entitled to under United States labor protection laws. If you think that your rights have been violated, consider speaking with an attorney to see if you have a wage and overtime infringement claim to make. Call (404) 876-8100 to schedule your individual appointment with the Georgia overtime and wage attorneys at Hall & Lampros, LLP. Our strategic and seasoned legal team has more than six decades of combined experience securing thousands of dollars in compensation for victims of wage and overtime theft. Our track record of success includes providing legal representation to workers in more than 30 states and prosecuting over 400 FLSA cases.
Employers Cannot Rely On An “Agreement” between and Employer and Employee for the Employee to Be an Independent Contractor.
Many employers and employees believe that an employment agreement can determine independent contractor status. This is not true. Instead of any agreement, the actual job duteis and characteristics of the job control. So if your employment required you to agree to be classified as an independent contractor, that does not end the question. You must look to your job duties. If you in fact should be classified as an employee, your employer may owe you substantial amounts in unpaid overtime.
The test for whether you are an employee (usually entitled to overtime) or an independent contractor depends on various factors:
- Whether the services you perform are an integral part of the business (how important is what you do for the business: if you provide cleaning services for a cleaning company you are an integral part of the company’s business and less likely to be an independent contractor; if you provide painting services for a painting company, you are integral and less likely to be an independent contractor).
- The permanency of the relationship (is it a temporary engagement or permanent (over a lengthy period of time)). The more permanent or long lasting the relationship, the more likely it is that you are an employee entitled to overtime.
- Who pays for your tools, work supplies, training, computers and are you required to wear a uniform?
- The nature and degree of control exercised by the business that hires you. (who decides when you work, where you work, and what you do?)
- The opportunity for profit and loss (does the company that hired you assume the risk and get most of the rewards from your work?)
- How much of the success and payment to the alleged independent contractors comes from initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent and separate business organization and operation. (do you have a separate business organization, separate office location, separate computers, separate phone lines?)
Potential Liabilities for Worker Misclassification
There are good reasons why employers may entertain adding independent contractors to the payroll. However, improperly classifying a worker and actively engaging in noncompliance to reduce overhead may cost a business more than the strategy saves in the end. The fines that the DOL, the Internal Revenue Service (IRS), and other state agencies can levy can be quite costly. Misclassification could cost a company millions for such infractions. In some cases, employers can also be subject to class action lawsuits.
The risk of incurring such steep penalties should persuade a company’s human resources department to monitor both its internal practices and those of the upper management so as to mitigate the potential of costly repercussions that may arise as the result of independent contractor misclassification. Workers who believe they may have been improperly classified as independent contractors may wish to consider speaking with an attorney at Hall & Lampros, LLP to determine if they deserve payment for any of the following violations of employment rights, including:
FLSA Violations: When an employee is wrongly classified as an independent contractor, failure to pay for overtime and minimum wage violates the FLSA. Criminal penalties may result, as well as the need for a company to issue back pay to their aggrieved employee.
Civil Liabilities: Companies may face civil suits, whether class action or from individual employees. Either can result in having to pay large settlements including damages, such as an employee’s attorney’s fees.
Failure To Pay Employment Taxes: Classification of employees as independent contractors means that a company does not pay federal and state payroll taxes on those workers’ accounts. For this reason, the IRS imposes steep penalties for independent contractor misclassification.
Form I-9 Audits: According to United States Citizenship and Immigration Services (USCIS), the Form I-9 is used to verify an employee’s identity and work authorization. Misclassification can lead to an audit of the business, potentially uncovering I-9 violations. Possible penalties for I-9 violations include fines, criminal penalties. I-9 violations may also lead to loss of government contracts and the ability to do work for the government.
Inaccurate Unemployment Insurance Payments: While regulations vary from state to state, employers are generally expected to pay some form of unemployment insurance on their regular staff, but not on independent contractors. Failing to accurately pay for state unemployment insurance due to misclassified employees could affect one’s rates.
Unpaid Workers’ Compensation Coverage: Independent contractor misclassification can lead to penalties for violations of state workers’ compensation laws. In addition, if an independent contractor files a workers’ compensation claim successfully proving that they were a misclassified employee and therefore entitled to benefits, the costs to pay a workers’ compensation claim from a misclassified worker may be the employer’s responsibility to pay, as workers’ compensation insurance will not typically cover the costs for an injured independent contractor.
Failure To Provide Benefits: An employee who has been misclassified as an independent contractor can sue their employer if the employer has excluded the employee, due to misclassification, from a company employee benefits program in which the misclassified employee was entitled to benefit. Because employee benefits programs often include substantial financial and non-financial compensation not available to independent contractors, individuals working as independent contractors whose work activities closely mirror those of regular staff have significant incentive to closely scrutinize their own classification.
Potential Charges for Discrimination: There is the possibility that misclassification can lead to questions related to anti-discrimination violations. State and federal protections exist to minimize discriminatory practices in the workplace. Discrimination charges and lawsuits are yet another conceivable liability for companies.
Not Providing Job-Protected Leave: Employees whose circumstances meet carefully delimited criteria are entitled to paid or protected leave under provisions of both the Family and Medical Leave Act (FMLA) and the Uniformed Services Employment and Reemployment Rights Act (USERRA). Misclassification that results in failure to provide leave to eligible employees can also lead to legal suits being filed against an employer.
Speak With a Wage and Overtime Lawyer Today
Employers who violate overtime and wage laws put themselves in great jeopardy of both criminal and civil penalties. All too often, however, it is not just the hiring businesses that violate employment laws that are subject to adverse outcomes. Independent contractor misclassification also means that affected workers bear many burdens for their employers’ negligence or outright fraud. To learn more about your rights as a worker, and review the options you may have if any employment laws have been violated by your employer, you can call the wage and overtime attorneys at Hall & Lampros, LLP at (404) 876-8100. Initial consultations are complimentary.
Chris has successfully represented numerous clients in catastrophic personal injury, employment law matters, class action, consumer protection, business tort, and legislative matters involving multi-million-dollar damages.