Classification of employees is no simple matter. Litigation over misclassification of employees is a growing trend in Ohio and throughout the country. Corporations like Walmart and Yelp have been forced into multi-million dollar settlements over alleged misclassifications. Companies of that size can absorb those liabilities, but most small and midsize businesses cannot.
There are two primary ways employers misclassify workers. First, a business may consider someone an independent contractor rather than an employee. The most common mistake is believing that if a person signs an “independent contractor agreement” and is given a 1099 to pay their own taxes, then they are an independent contractor. Whether a worker is an employee or independent contractor primarily depends on who controls the manner of the work, which involves a detailed, fact-specific analysis. A business owner cannot afford to get this wrong. If an independent contractor is judged to actually be an employee, not only could that person be entitled to overtime compensation, but the company could be responsible for retroactive payroll taxes, workers’ compensation premiums, unemployment taxes, health insurance, and more.
Second, employers often misclassify an employee as exempt, meaning that they are paid a salary and are not eligible for overtime. The most obvious examples of salaried employees are executives and professionals (accountants, attorneys, and physicians). The troublesome borderline cases are managers, nurses, medical/dental assistants, and computer technicians. Some are exempt, others are not. This determination requires a detailed analysis of that person’s primary job duties. Misclassifying an employee as exempt can result in up to three years of back overtime pay, additional damages doubling the wages owed, and paying the employee’s costs and attorney fees.
So what can an employer do to ensure this doesn’t happen to them? Be proactive. Review the status of all independent contractors to make certain they are not actually employees under the law. For salaried employees, conduct an audit of primary job duties, develop written job descriptions, and ensure that those jobs actually meet an approved exemption. If a worker raises a classification concern, don’t simply dismiss it. Address it immediately by contacting one of the Labor & Employment Relations attorneys at WHP.