Employee lawsuits against employers have almost doubled in the last six years. Under the Fair Labor Standards Act (FLSA), if an employer is found to have violated the Wages and Hours laws, the Secretary of Labor can file a claim for reimbursement and an amount equal to the liquidated damages, plus attorney and court fees. cost. Small businesses feel burdened and must be aware of complying with all laws.
To understand the Federal Labor Standards Act (FLSA), you must first learn what jobs are exempt from requirements and which are not. This is not as easy as you think, and there are many penalties that can arise from disobeying the law. Federal law allows an employee or former employee to return two or three years to collect unpaid overtime compensation. In cases of willful infringement, a three-year statute of limitations applies. Also, criminal penalties may be imposed for repeated offences. In addition to reimbursement, fines can range from $1,100 per minimum wage or overtime pay violation, or $10,000 for each child laborer employed illegally. Wages and Hours investigations can be very broad in scope and are not limited to the circumstances surrounding a single complaint. As a result, the employer opens the door for a review of the company’s total salary in this situation.
As an employer, knowledge of the requirements under the Fair Labor Standards Act is critical to avoiding penalties for non-compliance. For more information, visit the Department of Labor website, Fair Standards Act Advisor*.
Employers who refer to their workers as independent contractors simply to avoid unemployment, workers’ compensation insurance, and federal and state tax cuts, etc. will face serious problems with the Department of Labor (DOL) and/or the Internal Revenue Service (IRS). The IRS announced in May 2007 that worker classification cases would be a major area of emphasis in 2008. In March this year, DOL investigated a Texas water company and found that more than 200 employees had been misclassified as independent contractors. The company ended up owed nearly $600,000 for two years of missed overtime payments.
Are my employees employees or independent contractors? Ask this question:
1. Do you tell employees when and where to report to work?
2. Are employees given instructions on how the work is to be done?
3. Is the work supervised by anyone on your staff?
4. Are employees covered by any of your benefit plans?
5. Have you issued company identity cards to employees?
6. Do you provide business cards, stationery or other company property?
If yes to the above, most likely the worker is an employee, not an independent contractor.
The IRS recently updated its testing to determine whether or not an employee is an independent contractor. The following information was copied from their website:
The facts that provide evidence of a degree of control and independence fall into three categories:
- Behavior: Does the company control or have the right to control what workers do and how workers do their jobs?
- Finance: Are the business aspects of the worker’s job controlled by the payer? (this includes things like how workers are paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plans, insurance, vacation pay, etc.)? Will the relationship continue and is the work done a key aspect of the business?
After reviewing the three categories of evidence, if you are still unsure whether an employee is an employee or an independent contractor, the employer can file Form SS-8, Worker Status Assignment for Federal Employment Tax Purposes and Withholding Income Tax (PDF) with the IRS. Forms can be submitted by businesses or workers. The IRS will review the facts and circumstances and formally determine the status of the worker. Be aware that it can take up to six months to get a decision, but businesses that continually hire the same type of worker to perform certain services may want to consider filing Form SS-8 (PDF).
*http://www.dol.gov/elaws/flsa.htm
