The labor lawyers are coming…
I’m rarely an alarmist, but when you start seeing billboards and TV ads for “Overtime Lawyers” or “Wage Attorneys,” it’s time to take a very close look at how you classify and pay your employees. Remember, these lawyers usually work on contingency, so any of your employees that even suspects that they have been underpaid, has easy access to some very aggressive law firms. Also, these lawsuits were no longer just against big companies either: a significant number of small to mid-sized companies, even “mom-and-pops”, were quickly becoming targets.
READ ON for our tips to protect your company
A “Wage-And-Hour” lawsuit is one based on the federal Fair Labor Standards Act of 1938 which created the federal minimum wage, and also requires that nonexempt employees receive time-and-a-half pay for their overtime labor. When an employee (or group of employees) believes that their employer has unfairly denied them overtime pay, they may use the FLSA to sue their employer to recover the money.
The trap that often snares unsuspecting small business owners in a wage-and-hour claim is called “misclassification.” Misclassification happens when an employer declares certain employees “exempt” when they really are “non-exempt” under the National Labor Relations Board (NLRB) rules and regulations. The confusion between these two important statuses generally comes from the following broad misconceptions:
Titles and Salaries
Just because you pay an employee an annual salary (as opposed to an hourly wage) does not automatically mean the employee is exempt from overtime. The NLRB sets strict guidelines regarding the job duties of exempt employees who are classified as “executive”, “professional” or “administrative.” Remember, it is what your employees actually do, and not what title they hold, that counts.
Phones and Email
If your employees use IPhones, Androids, or other PDAs to check email or make business-related phone calls outside of your company’s regular working hours, then that time could be considered compensable work time. The rules are clear that if you knew or should have known that your employees are working “off the clock” you’re going to be responsible for paying them for that extra work.
Small business employers often (sometimes intentionally) misclassify workers as independent contractors instead of employees. It is an old internet myth that simply issuing a 1099-MISC tax form, or denying your workers certain fringe benefits, will shield your company from a misclassification claim. Both the NLRB and the IRS use a complex, multi-factor test make this determination, and unless you have carefully reviewed the status and duties of your “independent contractors” your company may find itself responding to, at best, an unpleasant inquiry from a state or federal agency, or worse: a non-negotiable demand letter from a large law firm.
Defending your company against these claims (or even negotiating a settlement) can wreck your company’s bottom line. Not only could you be liable for that extra compensation, plus interest, but you will also be paying some hefty fines, and possibly the attorney’s fees for the other side Therefore, savvy small business owners are encouraged to take the time to review their employee’s classifications, and if questions or problems arise, consult with a business lawyer for guidance.