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The Wage and Hour Division (WHD) of the Department of Labor found that Future Inc., an Oklahoma construction company, misclassified 31 workers. Future Inc. now owes $49,940 in back wages to those workers and another $49,940 in liquidated damages. The WHD contends that Future Inc. violated the Fair Labor Standards Act (FLSA) when it paid workers as independent contractors instead of treating them as employees.
What is misclassification and why does it matter?
Employers can hire two different types of workers, employees or independent contractors. Employees are hired to do set tasks at a particular location and are paid an hourly rate or salary. Independent contractors are more like an independent business. These workers contract out their labor for a set rate and have autonomy over when, how, and where they work. Employers often hire workers that should be classified as employees but misclassify them as independent contractors to avoid paying taxes and to get around paying benefits.
The problem is pervasive in the construction industry, with one report estimating up to 2.1 million construction workers misclassified or paid off the books. Just in the construction industry, this could be costing taxpayers up to $10 billion per year.
Independent contractor rules from the Department of Labor
Misclassification is not a harmless practice, but one that the DOL and IRS take very seriously. It denies workers benefits and protections owed to them, such as unemployment insurance, workers’ compensation, medical leave, and more. Local, state, and federal governments don’t get taxes paid on wages. Just recently, the DOL issued new guidance about identifying which workers are employees and which are independent contractors under the FLSA. You can find the final rule here.
Generally speaking, if a person who works for your business works 40 hours a week or more for you, and you determine their hours and place of work, they are an employee, not an independent contractor. Make sure your company is following the law to avoid costly violations.
