What Will Misclassifying An Employee Cost Your Business?

Misclassifying employees to save money in the short term can result in employers paying huge monetary penalties and fines if caught violating the Federal Fair Labor Standards Act (“FLSA”), or state law equivalent. This does not include the added penalty of individual lawsuits from private individuals and entities. In today’s struggling economy, everyone is searching for ways to save money and earn a prosperous living. But employers should be aware of violating the FLSA because doing so could result in fiscal penalties and perhaps even criminal liability. Even unintentional misclassifications in violation of the FLSA can result in serious penalty.

How To Determine If An Employee Is Misclassified?

Under the FLSA, a misclassification refers to mislabeling an employee in order to deny that employee from certain benefits and protections, such as minimum wage, overtime compensation, unemployment insurance, and medical leave. This saves the employer money in taxes, but places a strain upon State and Federal government because the institutions claim to collect less tax revenue as a result of the misclassification.

There is no single definition that qualifies an individual as an “employee” under the law. It’s not as simple as Black or White often times. Like many other areas within the law- it is somewhat “Grey.” However, that does not mean employers are left in the dark. Rather, the Supreme Court considers a number of factors to make this determination and provides some guidance, including:

the extent to which the worker’s services are an integral part of the employer’s business (is the worker critical to the business’ success?);

the permanency of the relationship (years or duration of consistent employment) 

the amount of the worker’s investment in facilities and equipment (does the worker use their own equipment?);

the nature and degree of control by the principal (exclusivity of employee autonomy);

the worker’s opportunities for profit and loss; and

the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition 

It is also worth mentioning, case law and Department of Labor decisions may help clarify particular circumstances and each employer’s business must be analyzed on holistic and case-by-case basis.

What Penalties May Employers Incur For FLSA Non-Compliance?

The penalties for FLSA violations depend greatly upon the type of violation. For minimum wage, overtime pay, and other wage related violations, the result is typically back pay with pre-calculated interest payments (in addition to legal fees). In other scenarios, the penalty comes in the form of liquidated damages, which refers to the employer paying a fixed sum of money.

According to the United States Department of Labor (“DOL”), the most serious penalties are reserved for those employers who were found to engage in a pattern of intentional behavior. The language used by the DOL is “willful” and “repeated” violator. The maximum penalties are steep and carry with it financial consequences into the hundreds of thousands of dollars. The willful violation of child labor standards that causes death or injury carries a maximum penalty of $113,894; the willful violation of provisions pertaining to a labor condition application carries a maximum penalty of $52,641; the willful violation of a safety measure causing death or injury to a worker carries a maximum penalty of $112,780. An employer could potentially be subject to both Federal liability and State liability for the same offense. Cases of extreme or egregious conduct could result in criminal culpability as well.

Contact Jonathan Shalom, Esq. and SHALOM LAW, PLLC to Learn About Your Rights 

If you have questions about this area of Labor and Employment Law, contact SHALOM LAW, PLLC., at 718-971-9474 for more information. Many employers are surprised to learn that “common industry practice” does not excuse misclassification under the FLSA, no matter how many other employers are engaging in the same type of practice. Even stranger, the signing of an Independent Contractor Agreement does not make the individual an Independent Contractor under the FLSA or the law.

To avoid the penalties and headaches caused by strenuous DOL audits, contact an experienced attorney to learn if your business practices are in compliance with New York State and Federal law. If you are concerned about a DOL audit, or are already under investigation for a DOL audit, contact SHALOM LAW, PLLC., at 718-971-9474 to learn about how to make the law work for you. The best defense to a DOL audit is to understand the requirements of governmental compliance and to prepare for what may result of the auditor’s assessment. Under no circumstances should you try to defend the audit on your own without first securing legal representation. If you are interested in Federal and New York State Wage and Hour laws, contact SHALOM LAW, PLLC. for a free consultation. SHALOM LAW, PLLC., may aggressively and effectively represent clients with all workplace and business disputes and commercial litigation matters. 

By Jonathan Shalom, Esq.

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Jonathan Shalom, Esq., a duly admitted attorney representing and counseling clients with all Employment and Healthcare law matters in New York State. Mr. Shalom may be contacted at 718-971-9474 for a free consultation.