8 "Red Flags" That You Are Misclassifying Employees

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May 08, 2018

Misclassisfying Employees

The Fair Labor Standards Act (FLSA) is a government agency that sets forward laws and requirements for employees including a determination of acceptable minimum wages, overtime pay, and record keeping. The FLSA also sets forth laws about employing minors. These laws affect workers in many different sectors of work including Federal, State, and local employees.

Misclassification of employees who are subject to FLSA and the compensations that employees get for overtime is a common problem that faces many companies throughout the US1. This is considered the most common violation of the FLSA today. The following are 8 "red flags" that employees within your company may be misclassified according to the laws and standards set forth by the FLSA:


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  •  Employees Are Paid Hourly: The only exceptions to this rule are those working in the fields of computer and outside sales. Otherwise, it is generally a law that all exempt employees must be paid a minimum wage of $455 per week. For those working in administrative, professional, and executive exemptions, employees are generally prohibited from paying hourly wages to these employees. For computer employee exemptions, the minimum hourly wage they receive must be at least $27.63 per hour. Some different states, however, may have various other requirements.
  • Employees Are Paid Less Than $455/Week Because They Work Part-Time: No matter if an employee is full-time or part-time they must be paid a minimum of at least $455 per week according to FLSA laws. 
  • Duties Tests Were Never Performed: Many employers fail to perform a duties test on their employees or do not perform their duties tests accurately. This results in a misclassification of the employee according to FLSA standards. Employers should verify an employee's duties to ensure that they stay compliant with FLSA regulations and requirements.
  • Job Titles Are Used To Determine Exemption Statuses: Job titles that specific employees hold do not determine if they are exempt from FLSA requirements or not. Unless employees are earning at least the aforementioned minimum wages and pass their duties test, they must be classified as non-exempt and they must be paid the wages they are entitled to for working overtime, which is classified as more than 40 hours in any given week.
  • Employees Perform Primarily Manual Labor: There are no exemptions in the FLSA laws for manual laborers. Companies still must adhere to and pay them according to the FLSA standards. These types of professions include everything from carpenters and electricians to mechanics, plumbers, engineers, and ironworkers just to name a few. 
  • Employees Are Exempt Due To Having A College Degree: A college degree is no guarantee that they pass the duties tests for getting a professional exemption. The only way an employee is exempt is if they have a job whose position requires advanced knowledge in the field of science or learning with specialized academic training. Otherwise, the FLSA laws apply to them just like any employee.
  • State Exemption Criteria Are Not Considered: Many businesses will follow the FLSA laws only and forget to consider the state laws that may be in place in addition to the federal laws. For states that have additional exemptions, you need to consider both the state and federal exemptions when determining whether your own employees are exempt or not.
  • The Same Deductions Are Made As Non-Exempt Employees: Unlike non-exempt employees, most exempt employees must receive their salary in full during any work week with a few exceptions. A few of the exceptions include absences for one or more full days of work in a given week, for penalties due to major rule infractions within the company, or during an employee's first/last week of work with your company if they do not work the entire week. 

These are just a few red flags that your company may be misclassifying your company's workers. Misclassifying employees may mean that your company is violating FLSA rules. 

How Do I Avoid Misclassifying Employees According To FLSA Rules?

If any of these aforementioned "red flags" sound familiar to your company, the next question would be: How do I avoid misclassifying any of my employees according to the FLSA rules? 

Many employers assume that just because an employee is salaried, that they are exempt from the FLSA requirements. However, this is simply not true. Exemption from the FLSA requires that employees perform a variety of high-level duties in order to be exempt from the FLSA labor and work requirements. For example, employees who are high-level executives who are able to recommend which employees are hired, fired, promoted, demoted, etc. may hold a certain weight that would possibly exempt them from the FLSA requirements. 

Depending on the company, some companies will be able to have their misclassified employees referred to their own human resources department. Smaller companies can refer such cases of misclassified employees to the company's CFO. 

Avoiding Monetary Issues With FLSA:

Last year alone there were more than 4,500 lawsuits filed under violations of FLSA. Numerous other legal actions were taken by the US Department of Labor along with 1,000s of other investigations. Employers can assure that their company is not one that is investigated by ensuring that they are in compliance with all FLSA laws for all employees that work within their company. Using either your own human resources department or, for smaller companies, your CFOs can ensure that you are in compliance with the laws set forth by the FLSA. This includes ensuring all employees get adequate compensation for their work as well as being sure that all employees are properly classified according to FLSA standards. 

It's always worth keeping in mind that the US Labor Department has over 1,000 employees that take complaints about FLSA violations at over 150+ offices throughout the US.

Be sure you are in compliance with the FLSA standards so that employees never have to make a complaint against your company. It can cause lawsuits or hefty fines that are imposed against a company who does not comply with these FLSA labor standards. 

For more information about ensuring that you are compliant with FLSA standards with all of your employees please feel free to contact us

1. https://www.dol.gov/whd/workers/Misclassification/misclassification-facts.pdf

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