Wage and hour compliance continues to be one of the most common and costly areas of exposure for employers. Many issues arise not from intentional misconduct, but from misunderstandings about how the law actually works in practice.
Two areas, in particular, continue to create risk for employers across industries: employee classification for overtime purposes and the use of independent contractors.
So, what should you be paying attention to?
Is paying someone a salary enough to avoid overtime?
One of the most persistent misconceptions is that paying an employee a salary above a certain threshold automatically makes them exempt from overtime. It does not.
While there is a minimum salary threshold (currently $35,568), meeting that threshold is only one part of the analysis. To properly classify an employee as exempt, their actual job duties must also meet specific legal criteria. These exemptions generally fall into categories such as executive, administrative, professional, outside sales, and certain highly compensated employees. The key issue is not what the employee is called, or even how they are paid, but what they actually do on a day-to-day basis.
This is where many employers run into trouble. Employees may be treated as exempt based on title or compensation, when in reality their responsibilities do not meet the legal standard. The risk is significant. Misclassification can lead to liability for unpaid overtime, penalties, and claims that may extend across multiple employees and multiple years.
If you have not recently evaluated how your employees are classified, this is an area where a labor and employment attorney can help assess risk and identify potential exposure before it becomes a larger issue.
Are your independent contractors really independent?
The second area where employers frequently face exposure is worker classification. Many businesses rely on independent contractors for flexibility and cost efficiency. However, the legal distinction between an employee and an independent contractor is more nuanced than it may appear.
Two common misconceptions are that having a signed independent contractor agreement is enough, and that classifying a worker as a 1099 contractor, especially at their request, settles the issue.
In reality, neither determines the outcome.
Regulatory agencies apply fact-specific tests to assess whether a worker is truly independent. These tests focus on factors such as:
- The level of control over how work is performed
- The degree of independence in the working relationship
- Whether the worker is economically dependent on the business
Even with a written agreement in place, a worker may still be legally classified as an employee. The risk can be substantial. Misclassification may result in liability for unpaid wages, overtime, payroll taxes, benefits, and can trigger audits or enforcement actions.
A proactive review of your independent contractor relationships, ideally with guidance from labor and employment counsel, can help ensure your classifications align with current legal standards.
Why this matters now
Wage and hour enforcement continues to be an area of heightened scrutiny, and these issues often surface during employee complaints, government audits, or business transactions and due diligence processes.
What may seem like a technical classification issue can quickly become a broader financial and operational risk.
How can employers minimize risk?
Employers should consider taking a proactive approach to workforce classification, including:
- Conducting periodic audits of both employees and independent contractors
- Evaluating job duties, not just titles or compensation structures
- Reviewing independent contractor relationships for compliance
- Addressing potential issues before they arise in the context of a dispute or audit
What does this mean for your business?
Wage and hour compliance is not a one-time exercise. As your workforce evolves, so do the risks. Seemingly minor classification decisions can have long-term financial and legal consequences, particularly if they affect multiple workers over time.
A periodic review of your workforce structure can help ensure that your practices align with current legal standards and reduce the likelihood of unexpected exposure. Working with experienced labor and employment counsel can provide clarity in areas where the rules are highly fact-specific and where small distinctions can make a significant difference.
For more information about how wage and hour laws may impact your business, please contact the Davis, Agnor, Rapaport & Skalny attorney with whom you typically work, or a member of our Labor & Employment Practice Group.