Wage-and-hour complaints are at an all-time high

Federal wage-and-hour lawsuits against employers are at an all-time high. In fact, the number of employee lawsuits has quadrupled in the last 10 years, according to government figures.

Most of the recent suits accuse companies of wrongly calling an employee an independent contractor. (The remainder are for failure to pay overtime, wage miscalculation, and similar issues.)

Of course, more and more businesses want to treat their workers as contractors, because they can often avoid overtime rules, payroll taxes, employee benefits and medical leave requirements. The problem is that companies are often careless about observing the rules, and they get in trouble as a result.

In addition to the lawsuits, both the U.S. Department of Labor and the IRS have been cracking down more aggressively on businesses that misclassify their workers. Besides awarding back wages and benefits, the IRS can issue fines of up to $5,000 per misclassified worker, and state governments can impose additional penalties.

Part of the problem is that there’s no single, clear test to distinguish an employee from a contractor. In general, though, a worker might be an “employee” if he or she has worked steadily for the business for a long time, doesn’t perform work for any other employer, performs “core” functions of the business rather than the sorts of functions that are typically outsourced, or does essentially the same work as other people who are treated as employees.

Misclassification can be an even bigger problem if a worker is injured on the job.

For example, a teenage worker on a horse farm in Maryland recently suffered severe hand injuries when a horse kicked her. The teenager had been classified as a contractor, and earned $8 an hour for cleaning stalls and training and feeding horses.

After the injury, she wasn’t able to collect workers’ compensation because she wasn’t an employee. So she sued the farm for “fraud” stemming from the misclassification, as well as for failing to provide a safe workplace.

A jury found that she should have been treated as an employee, and awarded her $275,000 – which is presumably a lot more than it would have cost the farm to treat her as an employee and pay for her workers’ comp insurance.

A different wage-and-hour problem stems from the fact that in today’s economy, when lower-level workers leave, companies often choose not to replace them and instead ask more senior workers to pitch in and take on some of the departing workers’ tasks.

The problem is that if you give enough low-level responsibilities to employees who are exempt (and so not eligible for overtime), you might suddenly find that you’ve transformed them into employees who are non-exempt (and thus entitled to overtime).

In general, employees are exempt if their primary job function is managerial or professional. But if a manager takes on too many clerical tasks, at some point he or she might no longer be “managerial.”

There’s no absolute test; it all depends on how much time the employee spends on various tasks, the relative importance of the tasks, and how much he or she is supervised.

Under federal law, it’s generally assumed that if you spend more than half your time on exempt tasks, you’re exempt. But some states have different rules. In Illinois, for instance, workers who spend only 20 percent of their time on non-exempt tasks may in many cases be eligible for overtime.

If you have any questions about wage-and-hour issues, we’d be happy to help.

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