Watching Your Step — As You Walk the Employee Misclassification Minefield

1.25 billion dollars, that’s how much the federal government has recovered in owed wages for nearly 2 million workers since the beginning of the decade. Incomprehensible right — so please let me digress. If you convert this number to time, one billion seconds ago it was the year 1959. That’s a crazy thought, right? Well this astronomical number is a result of a crackdown by state and federal government agencies coupled with an increase in private lawsuits that has financially crippled many companies who were not careful in classifying their workers as exempt from overtime pay. Do I have your attention yet?

So you may be wondering, what has changed in the last decade to cause such a problem? Well, the answer is twofold. To help clarify overtime issues and attempt to reduce litigation, the federal government revised some of its classifications in 2004. Although designed with good intentions, this new system had the opposite effect, heightening awareness of the subsequent problems. Secondly, as our economy has taken a major blow— massive layoffs have driven employees to seek legal consultation. As a result, litigation related to unpaid overtime claims has risen and will most likely continue to do so.

Tie this into the fact that the Department of Labor has recently hired 250 wage and hour investigators along with state and private attorneys targeting employers who owe overtime and your company might inadvertently find itself strolling through a minefield. Wage and hour law suits are beginning to surpass discrimination suits in federal court and given the fact that an individual complaint can easily turn into a class action suit, your company may find itself in financial peril.

So you may be thinking, what are the chances of my company coming under review? Well, your chances are much greater than you think. You really need to be concerned every time a former employee files for unemployment or if a terminated employee seeks legal advice. These are red flags that both attorneys and regulating agencies seek out.

The unfortunate problem here is that many companies aren’t even aware that they are improperly classifying employees. What many companies fail to realize is that it’s not the job title that determines whether an employee qualifies for overtime; it’s the work they perform. In order for a position to be exempt from overtime, it would have to satisfy a duties test and the employee would, in most cases, have to be paid on a salary basis. Simply paying your employees a salary does not make them exempt from overtime.

So what can a company do to protect itself? The best way is for company owners to align themselves with a person or entity that understands all the rules and regulations and can act on the company’s behalf, ensuring everything is taken care of properly. If they don’t, their company’s next step may very well be its last.

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