The Fair Labor Standards Act (FLSA) is a federal law that establishes labor standards for minimum wage, overtime pay eligibility, recordkeeping and child labor; standards that affect workers in the private sector and in federal, state and local governments.
Also referred to as “wage and hour laws,” these regulations remain some of the most misunderstood and misinterpreted rules that employers face.
The FLSA states that an employee is “any individual employed by an employer.” I expect everyone would agree that this statement is vague, to say the least. What’s more, when defining the term “to employ,” the Act includes when an employer “suffers or permits a person to work,” which is also very vague. You may have thought to yourself as you read the title of this article that you are, indeed, in compliance and that you would know if you were not. But, as anyone who has dealt with the IRS or Department of Labor for employee classification issues can tell you, they are anything but straightforward.
Wage and hour suits, as both individual and class action claims, have emerged as one of the most significant employment law trends of this decade. Given the complexity of federal regulations and the numerous individual state regulations, the possibility of being out of compliance is significant and could prove very costly for your company.
The provisions of both the original act and subsequent revisions focus on the following major areas:
- Establishing a minimum wage
- Discouraging oppressive use of child labor
- Encouraging limits on the number of hours employees work per week through overtime provisions (exempt and nonexempt status)
- Identifying employee status versus independent contractor status
It is with the last two points that my concern exists for those of us in the restoration and cleaning industries.
Exempt vs. nonexempt status
Under the FLSA, employees are classified as either exempt or nonexempt. Exempt employees hold positions for which employers are not required to pay overtime. Nonexempt employees must be paid overtime. The current FLSA regulations used to identify whether or not a job qualifies for exempt status classifies jobs into five categories:
- Professional (learned or creative)
- Computer employees
- Outside sales
A strong word of caution: Do not simply look at the titles to determine the classification. There are more criteria involved than that; in fact, there are seven major conditions to address when deciding. But what matters most in making the appropriate decision of classification is not what an employee appears to do on paper, but rather what the employee actually does. The exact details for each exemption can be found on the U.S. Department of Labor’s website (www.dol.gov).
Employee status vs. independent contractor status
The distinction between employees and independent contractors is not always apparent. Once again, titles or labels affixed to particular workers are often misleading and should not be relied on to determine whether a worker should be classified as an employee or an independent contractor.
The following are a few examples of the questions that must be asked to determine appropriate status:
- Does the worker have the ability to set their own hours and determine their sequence of work?
- Do they work off site?
- Are they paid by the job?
- Do they have the opportunity for profit and loss?
- Do they furnish their own tools and training?
- Are they self-employed, and do they refer to themselves as such?
The IRS has created a document titled IRS 20 – Factor Test for determining whether workers are employees or independent contractors. I urge you to review this document if you have any concerns or questions about whether you have made the right decision in determining the status of your workers. Keep in mind that no one factor, in and of itself, makes the determination.
As is the case with determining exempt versus nonexempt status, the misclassification of employees as independent contractors is becoming an increasingly significant legal concern for organizations. I urge everyone reading this article to take a step back and consider if there might be possible issues with your overtime practices or workers’ classifications. It would be wise to consult with a competent labor attorney if you have any questions about your compliance under the Fair Labor Standards Act.
Although you may believe that your chances of being sued for FLSA violations are minor, I cannot stress enough that this issue should not be overlooked in today’s increasingly litigious culture.
Scott Tackett is a Business Development Advisor for Violand Management Associates (VMA), the largest consulting company in the restoration and cleaning industries. Tackett is considered the leading expert in restoration and cleaning for Human Resource Development and Organizational Leadership with more than 30 years of experience. Through Violand, he works with companies to develop their people and profits. To reach him, visit Violand.com or call (800)360-3513