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Employers have an implicit incentive to cut costs everywhere they see them. This widens profit margins for themselves and their investors and contributes to the overall viability of the business. In and of itself, this isn’t a bad thing because a viable business is one that can continue to employ its workers. Where it can become problematic, however, is when the cost-cutting endeavors directly and illegally impacts employees.
There are many ways an employer can violate wage laws, but employee misclassification has the potential to go unchecked the longest. This is because employee misclassification involves labeling a worker in a manner such that the employer’s obligations to pay overtime or certain taxes are limited.
Typically, workers will be misclassified as “exempt” or as “independent contractors.” Let’s take a look at each and how you may be able to identify if you’ve been misclassified.
Exempt vs. Non-Exempt Employees
When we’re talking about employment law, “exempt” almost always refers to an employee’s eligibility to earn overtime pay. The Fair Labor Standards Act makes this distinction and provides that overtime pay is calculated at a rate of one-and-a-half times the employee’s regular rate. In California, overtime pay is earned for each hour greater than 40 in a week or eight in a day.
There are nuances to overtime compensation laws in California that we’ll explore in another post, but for now that’s the basics of how overtime pay works. Clearly, employers have a financial incentive to label certain workers as “exempt” from overtime compensation when they should really be classified as non-exempt. Misclassification leaves the door open to demand more hours and more work from an employee without consequence because exempt workers aren’t entitled to overtime.
Here is how California law defines a non-exempt worker:
- They DO NOT earn a monthly salary of at least no less than twice the state’s minimum wage for full-time employment
- They DO NOT exercise discretion and independent judgement with regard to evaluating possible courses of action and deciding to take an action after consideration.
- Less than 50 percent of their time is spent performing non-exempt duties, such as manual labor.
- They ARE NOT an executive, administrator, salesperson, computer professional, artist, or another professional with specific skills and education.
Your job title is irrelevant if the reality of your job doesn’t match up to these standards. It’s not uncommon for employers to inflate their employees’ titles to make them sound as if they’re performing exempt functions when these employees should really be classified as non-exempt workers.
Independent Contractor Misclassification
Unlike exempt misclassification, inappropriately classifying workers as independent contractors not only helps the employer avoid paying overtime and payroll taxes, but also makes it harder – or even impossible – for the worker to bring wrongful termination, discrimination, sexual harassment, and other types of employment-based lawsuits.
An independent contractor is a perfectly legitimate classification. People who are independent contractors are often contracted by an employer to do a special job or perform work for a limited period of time, like an accountant.
That said, not everyone who is labeled as an independent contractor may actually be legally considered as such. California recently provided a so-called “ABC Test” to help people determine if they should truly be classified as independent contractions.
According to the ABC Test, an independent contractor is someone who:
- Is free from control and direction of the company in performing work, both practically and in the contractual agreement between the parties;
- Performs work that it outside the usual course of the company’s business; and
- Is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the company.
If your relationship to an employer DOES NOT align with the above criteria, you may actually be misclassified and should be a full-fledged employee. Chances may also be likely that you should be a non-exempt employee and entitled to earn overtime pay.
Do You Need To Hold an Employer Accountable?
If you believe you are a misclassified employee and have been improperly denied overtime pay, certain benefits, or have otherwise had your employment rights violated, reach out to Haeggquist & Eck, LLP for help.
Contact us online or by calling (619) 342-8000 for a free evaluation!
