Misclassifying Employees: An Expensive Wage and Hour Mistake

employee policy, HR, leadership Jinyu Qian February 21, 2019

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With sexual harassment cases getting a lot of media attention, it might seem like that is your company’s biggest liability risk. And depending on where you work, this might be true.

Do you need to invest time and energy into preventing sexual harassment at your workplace? Yes! But there are other less talked about, but equally serious, risks you need to consider as well. Like wage and hour violations.

 

It’s not about the headlines

When it comes to workplace violations, wage and hour issues may not be grabbing the top news spots. But they can be just as damaging and disruptive to your business.

There’s no question that wage and hour settlements are on the rise. The number of FLSA cases has skyrocketed over 450% since 1995. And if you think that number is staggering, you should check out some of the data on back wages and fines.

If you’re a business owner or HR professional, this information may be scary, and rightfully so.

One of the more frightening aspects of wage and hour violations is that employers rarely make mistakes with a single employee. More often, it happens with a class of employees— which raises the stakes, fines, and consequences exponentially.

The good news is that wage and hour mistakes are almost always avoidable. In other words, you are your own best defense. You just have to be vigilant.

 

Classify employees properly

The key to avoiding costly claims is to get your employee classifications right the first time and every time. When it comes to compliance, complacency is your enemy. Stay on top of the rules by doing the following:

 

Make sure you understand how the Department of Labor defines an exempt vs. non-exempt employee.

If you don’t know what the regulations are, your chances of being able to abide by them are pretty slim. And claiming ignorance won’t get you out of a lawsuit or the resulting judgement. When it comes to compliance, knowledge really is power.

Once you have the rules down, figure out how to align the various classifications with your team structure and how your employees work. Structure positions, job duties, and compensation so that everything fits within defined categories to help eliminate gray area.

Evaluate your job descriptions

Just because a job description appears to fall into a specific category doesn’t mean it correctly reflects the role, position and responsibilities. If an employee can show there’s a discrepancy between the written description and the daily reality, that’s a problem.

Educate yourself on classification for independent contractors.

The nuances here can be complicated, but that’s no excuse for getting it wrong. You can refer to someone as an independent contractor all day long, but if you’re telling that person exactly what to do and how to do it, that’s an employee. And one who may be classified incorrectly.

 

Do your research

If you aren’t 100% sure how to classify an exempt vs. non-exempt employee, you can reduce your risk by sticking with a non-exempt status. If you’re unsure about whether or not you’re hiring an independent contractor or staff person, you can fill out this form and the IRS will make the determination for you. It can take up to six months, but at least you’ll have a clear answer.

If you want to be safe in the meantime, always choose to err on the side of your employee.

 

Stay up to date

It’s a good idea to regularly evaluate your job descriptions, compensation, and classifications to make sure they are all still aligned and where they should be. If you find any anomalies, address them immediately.

Don’t wait for your employees to point potential discrepancies out to you. A good-natured staff member might come to you first and agree to work things out amicably. But an unhappy employee might very well call her cousin, who happens to be a litigation expert.

Keep your business safe and your employees happy by classifying staff correctly and paying them what they’re worth.

 

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