Why You Should Care About Compliance

JUL 27, 2017 @ 08:00 AM

As the on-demand economy grows, independent professionals are becoming a larger and more essential part of the workforce. The number of self-employed Americans rose to nearly 41 million in 2017 and is predicted to rise to 47.6 million in just five years. This shift away from traditional employment allows independents to work on their own terms while organizations that engage them fill skills shortage gaps, gain staffing flexibility, and realize lower costs.

Coupled with this growth, however, we’ve seen an increase in federal and state government efforts to combat employees being misclassified as independent contractors. In June, the Department of Labor (DOL) removed the Obama-era guidance about joint employment and independent contractors. While it has been widely reported that this withdrawal does not change the legal responsibilities of employers under the Fair Labor Standards Act (FLSA), it may indicate that the current administration is taking a more traditional view of employment relationships, as opposed to past interpretation of these documents that assumed most workers were employees.

We’ve seen the results of these actions in the increase in class-action lawsuits, such as Citigroup’s $325,000 settlement for misclassification of technology workers, Zenefits’ $3.4 million payment to misclassified employees for unpaid overtime, and FedEx’s $228 million settlement for misclassification of delivery drivers.
Lawsuits like these are just one of many very real consequences of misclassification, but avoiding a misclassification suit isn’t the only reason to care about how one should engage independent talent.

Here are three reasons compliance should be top of mind for all organizations that engage independent professionals.

Compliance Aids In Proper Classification

Classification of independent contractors is not a clear-cut process. Federal, state and local government agencies use a variety of tests to determine whether or not a worker is a true independent contractor.

Just because independent contractors call themselves an independent contractor doesn’t mean they are one in the eyes of the law. Independents come from various backgrounds and experience levels and have different levels of self-employability. When engaging independent talent, it’s up to organizations to make a final determination of classification, but because tests vary from agency to agency and because regulations are constantly changing, these decisions can be complex.

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Houston’s Attempt To Curb Wage Theft (TX)

Whatever came from Houston’s Wage Theft Ordinance? We take a look.

JULY 18, 2017, 7:00 AM (LAST UPDATED: JULY 18, 2017, 10:22 AM)

It’s called, “wage theft.” And it’s a problem here in Houston, that the city tried to address. More on how that worked out in a minute.

But first, just what constitutes wage theft?

It takes many forms. Not paying workers overtime they are entitled to, working off-the-clock, minimum wage violations, incorrectly categorizing employees as independent contractors, illegal deductions in pay, and not paying workers at all are all common examples of wage theft.

Stealing workers’ wages is an issue that even compelled President Obama to implement an executive order back in 2014 which, in part, discouraged businesses from committing wage theft, by not allowing them to receive federal contracts. That was repealed by President Trump back in March.

Tom Padgett is a lawyer in Houston, who says he represents lots of wage theft cases.
“The problem is that employers hold all the cards. And employees are afraid. They are afraid of retaliation…. I mean, we’ve had employees who have asserted their rights, and then the employers fire them, and they lose their house. Or they can’t afford their health insurance anymore, and their baby gets sick. So there’s a lot of terrible stories out there,” Padgett said.

The Fair Labor Standards Act (commonly known as FLSA) is a federal statute, put in place to ensure proper payment for workers. But Padgett’s firm says federal and state agencies don’t really have the man power to truly enforce that.

“There’s no specific Texas wage and hour law that would protect people. We have to go to federal court or we have to get a municipality, or a local ordinance, like Houston,” Padgett said. “But I haven’t seen any impact from the Houston ordinance, or any change at all.”

Padgett is referring to the Houston Wage Theft Ordinance, which was passed in 2013. It was put in place to deter businesses from stealing worker’s wages, by banning violators from working with the city. The ordinance even effectively bans businesses from operating in Houston, by way of not being able to renew permits and licenses.

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AZ contractor ordered to pay $48K in worker misclassification case

By Kim Slowey
July 28, 2016

Dive Brief:

  • The U.S. Department of Labor has ruled that Arizona homebuilder DCO Custom Builders must pay $48,000 in back wages and penalties for misclassifying workers as independent contractors and not paying employees at overtime rates when required – in violation of the Fair Labor Standards Act, according to the Arizona Republic.
  • The DOL investigated DCO for two years and ordered the contractor to pay 31 employees $24,255 in unpaid overtime, additional penalty wages and restitution in the amount of $4,604.
  • Despite DCO’s actions, a DOL spokesman said the company is now in compliance with fair labor standards, and DCO managing owner Daniel Osete said the company was unaware it was violating a law and has taken internal measures to make sure the same situation doesn’t happen again.

Dive Insight:

Eric Murray, director of the DOL’s Phoenix Wage and Hour Division office, said misclassifying workers as independent contractors “cheats” employees and taxpayers alike. Murray told the Arizona Republic, “As this outcome shows, we are committed to protecting the rights of construction workers and will use every tool available to hold employers accountable.”

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Feds: Buckhannon nonprofit violates Fair Labor Standards Act

August 12 2016
Matt Harvey

BUCKHANNON – The U.S. Department of Labor’s Wage and Hour Division has revoked a West Virginia nonprofit’s ability to pay less than the current federal minimum wage to workers with disabilities.

The action came after federal investigations found the organization violated provisions of the Fair Labor Standards Act (FLSA) and McNamara-O’Hara Service Contract Act (SCA), according to a news release from the federal agency.

The division found that Buckhannon-Upshur Work Adjustment Center – a nonprofit community rehabilitation program – violated the FLSA when it failed to pay a valid sub-minimum wage to 12 workers with disabilities employed to do light assembly production.

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WHD News Release: 05/19/2016
Release Number: 16-0876-CHI

Type of Action: Fair Labor Standards Act consent judgment

Defendant(s): Expertize Masonry Inc., Pawel Walaszek

Investigation Findings: An investigation conducted by the department’s Wage and Hour Division found that Elmwood Park, Illinois-based Expertize Masonry Inc., and Walaszek violated the Fair Labor Standards Act’s minimum wage, overtime and recordkeeping provisions when they misclassified employees working as laborers, masonry workers, crew leaders and foreman on masonry jobs in the Chicago area as independent contractors.

Investigators found the misclassification resulted in workers receiving less than the legally required federal minimum wage, and led to the employer’s failure to pay the workers overtime when they worked more than 40 hours in a workweek. Additionally, the employer failed to maintain accurate time records as required by the FLSA.

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Final Rule: Overtime

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. Consistent with the President’s goal of ensuring workers are paid a fair day’s pay for a hard day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.

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Wiljo Interiors Inc. in Tulsa pays more than $200K in unpaid wages and benefits to 178 misclassified construction workers

US Department of Labor investigation finds contractor responsible as a joint employer of its subcontractor’s workers


WHD News Brief: [12/15/2015]
Release Number: 15-2312-DAL


Employer: Wiljo Interiors Inc.

Site: Riverside Indian School in Anadarko, Oklahoma.

Investigation Findings: A recent investigation by the U.S. Department of Labor’s Wage and Hour Division found Wiljo Interiors Inc. violated overtime provisions of the Fair Labor Standards Act and Contract Work Hours and Safety Standards Act; and did not pay the proper prevailing wage rates or fringe benefits required under the Davis Bacon Act.

Wiljo Interiors was sub-contracted by prime contractor, Cherokee CRC LLC, to work on a $2.9 million federally-funded construction project at the Riverside Indian School in Anadarko, Oklahoma. Wiljo Interiors then brought in an additional sub-contractor, Strong Rock Drywall LLC, of Tulsa, Oklahoma, misclassified its owner and workers as independent contractors, yet dictated what they would pay them. Strong Rock also failed to pay its employees as required by law, but their work was directed and controlled by Wiljo. Therefore, the division found there was a joint employment relationship between the two employers, holding both employers responsible, both individually and jointly, for compliance with the FLSA. The FLSA states joint employment exists where workers have an employment relationship with one employer, and the economic realities show that they are economically dependent on – and thus simultaneously employed by – another entity involved in the work.

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Southern California flooring contractor pays more than $458K in back wages, damages to 127 workers following US Labor Department investigation

WHD News Release: [12/10/2015]
Release Number: 15-1870-SAN


RIVERSIDE, Calif. – Drivers experience frustrations when stuck in congested traffic areas, such as Los Angeles. Sometimes, other factors test their tolerance, such as spending multiple hours behind the wheel each day for work and not getting paid for all that time, as required by law. That is what happened to 127 workers in Riverside.

An investigation by the U.S. Department of Labor’s Wage and Hour Division found that Mota’s Floorcovering Inc. in Riverside paid straight time for all hours worked – including those employees who put in more than 40 hours in a workweek – in violation of the Fair Labor Standards Act’s overtime provisions. The company also required workers to travel each day to and from work sites, including out-of-town assignments. However, the company did not always count travel time correctly and compensate the time as hours worked. In addition, the employer failed to include compensable travel time for overtime wage calculations, and did not keep accurate time records, in violation of the FLSA.

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US Labor Department recovers more than $342K in unpaid overtime wages, damages for 22 So Cal construction and maintenance employees

WHD News Brief: [12/07/2015]
Release Number: 15-2280-SAN


Employer: Salinas Inc.

Site: 1537 E. McFadden Avenue, Suite G, Santa Ana, California 92705

Investigation findings: An investigation by the U.S. Department of Labor’s Wage and Hour Division found that Salinas Inc. violated the overtime and recordkeeping provisions of the Fair Labor Standards Act. The firm paid field workers, such as plumbers and carpet cleaners, a fixed semi-monthly salary regardless of the hours these employees actually worked. Some of these workers were also paid an additional flat rate for service calls. These employees often worked as many as 70 hours per week, but were not paid legally-required overtime for hours worked beyond 40 in a workweek. The carpeting, plumbing, painting and janitorial general contractor did use time cards for office staff but failed to keep any records of hours worked by their field employees, as required under federal law.

Resolution: Salinas will pay $171,428 in overtime back wages plus an equal, additional amount in liquidated damages, totaling $342,856 to 22 workers.

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DOL is Watching: Are You properly Classifying Employees?

posted on: Wednesday, September 16, 2015


Recently, the United States Department of Labor (DOL) issued an Administrator’s Interpretation regarding the classification of independent contractors under the Fair Labor Standards Act (FLSA or Act). Much has been written about this “interpretation.” In review, the interpretation is best understood as an aspirational view based on an administrative belief that all workers should be employees. While DOL’s interpretation is supported by case law, in many cases, the supporting law constitutes minority or aberrational positions. Whether DOL’s position is ultimately sustained by the courts or not, it is important to understand DOL’s enforcement position.

The DOL takes the position that “most workers are employees under the FLSA’s broad definitions.” This pronouncement strongly signals that the DOL will continue to aggressively pursue misclassification claims. The DOL has entered into memoranda of understanding with at least 25 state enforcement agencies, as well as the IRS, in order to bring enforcement actions regarding alleged misclassifications.