HR Management & Compliance

Contractors for Storm Clean-up Pose Misclassification Risks

Hurricane Sandy’s path of destruction has left many homeowners, municipalities and businesses in need of reconstruction and repairs — and when such weather-related disasters require massive reconstruction efforts, many landscapers and builders hire subcontractors to help. Increased joint employer liability, particularly in those industries that frequently use subcontractors, often goes hand-in-hand with worker misclassification.

Employers need to pay attention to what DOL and the courts focus on when considering the employment relationship. If a worker has been misclassified as exempt from the Fair Labor Standards Act (when he/she really is nonexempt), overtime, back wages and other penalties can amount to thousands or even millions of dollars.

The FLSA sets minimum wage and hour provisions and requires nonexempt workers to make at least the federal minimum wage ($7.25), and time and a half their regular pay rate for any time worked over 40 during the workweek. However, the FLSA also has special provisions for certain types of employees, and allows qualified workers to be exempt from its overtime requirements. The most common violations are those involving classification and overtime pay, and a frequent reason employers are subject to penalty for violations by subcontractors is because a joint employment relationship has been found.

Therefore, the challenge for many employers, particularly those using subcontractor services, is properly classifying workers as exempt or nonexempt. Often, employers will classify subcontractors as “independent contractors,” thus placing those workers in the category of exempt workers who do not require overtime pay. These situations are particularly tricky because, although the employer hiring a contractor/subcontractor can pay attention to work quality and standards, it is not as easy (or likely) for the hiring employer to pay attention to the contractor’s internal business practices, like proper payment of workers. While the facts in these situations almost always differ, two common problems include misclassification of subcontractors and the possibility of joint employer liability.

For the full article and additional tips on how to properly use subcontractors, click here.

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