On December 6th, 2022, the U.S. Department of Labor (DOL) announced that a Florida-based hotel staffing agency paid more than $500 thousand in back wages to settle an independent contractor misclassification case. Briefly, misclassifying employees as independent contractors, whether willfully or mistakenly, prevents employees from accessing wages owed to them, as well as associated benefits. Civil penalties in independent contractor misclassification cases can be as high as $1,000 per misclassified employee. Meanwhile, other states like California may levy penalties as high as $15,000. Earlier, in October 2022, the DOL published its proposed independent contractor rule for determining employee versus independent contractor classification.
Independent Contractor Misclassification Under the FLSA
As the nation’s primary wage law, and one of the most crucial employment laws all businesses need to know, the Fair Labor Standards Act (FLSA) provides a minimum wage and overtime protections for virtually all U.S. workers. In brief, the FLSA requires private sector and government employers to pay a federal minimum wage of not less than $7.25 an hour and an overtime pay rate of one and one-half the regular pay rate during hours worked over 40 a week.
However, some employers illegally and inaccurately treat their workers as independent contractors to avoid paying required overtime. What’s more, this illegal independent contractor misclassification denies employees benefits and protections to which they are legally entitled. It’s worth noting that employee misclassification is illegal even if the employee agrees to the erroneous classification. Independent contractors differ from employees in that they:
- control their own workload or run their own business,
- provide for their own materials,
- work with multiple clients, and
- deal with temporary client relationships.
Overview of the Independent Contractor Misclassification Case
Investigators from the DOL’s Wage and Hour Division (WHD) found that the Florida-based staffing agency denied workers full wages and benefits through their independent contractor misclassification. Instead, the staffing agency paid all workers straight-time rates for all hours worked, including hours over 40 in a workweek. In doing so, the staffing agency failed to pay workers the required time-and-one-half overtime rate. Moreover, WHD investigators also determined that the staffing agency did not keep accurate records of all hours worked and employee wages paid.
As a result of the DOL investigation, the agency recovered $503,053 in back wages and liquidated damages. Claimants under the case included a total of 227 workers at the staffing agency.
Worker Misclassification Prevention eLearning Module
According to the DOL, as many as 30% of all independent contractors are misclassified. Employers that make this error violate the FLSA and are subject to lawsuits, tax penalties, and other monetary penalties. To help businesses demonstrate good-faith compliance with the FLSA and to avoid employee misclassification, Personnel Concepts created the Worker Misclassification Prevention eLearning Module. This training module helps employers understand proper worker classification under federal employment laws and includes digital resources like our independent contractor classification checklist to use when verifying the status of workers.
