November 14, 2023

A Rose is Not a Rose – Worker Misclassification

Before you fill a vacancy, you need to decide what type of worker you need and want. Do you want to hire an employee or engage a worker like a volunteer, unpaid intern, or independent contractor (IC)?

One company learned that preparatory lesson the hard way and to the tune of $532K.  Ouch.

The would-be employer engaged 67 workers, classifying them all as IC’s. The U.S. Department of Labor disagreed with that classification. You might ask, does it really matter what we call a worker or what label we attach? The U.S. Department of Labor certainly thought so. As a result of the misclassification,

  1. the employer paid the employee straight time for all hours worked, no overtime for any hours worked over 40 in a work week, as required by the Fair Labor Standards Act (FLSA); and
  2. since the employer considered the workers to be IC’s, it failed to maintain records of hours worked as required by the FLSA.

This issue is not new. It has been on multiple federal agencies’ horizon for some time. The story for this employer might not yet be over. Many states have their own rules for classifying a worker as an IC or employee. And those state rules are different from the federal rules, as well as different from each other.

Lessons learned. If you are thinking of engaging the services of an independent contractor, start with the definitions of the state where the employee will work. The state rules are generally stricter than the federal rules. If the worker passes that test, then assess the classification applying federal guidance. The trick is, stay tuned. The U.S. DOL’s definition has changed a few times in the last few years and currently has yet another proposed rule pending!  Stay tuned.