Employee? Contractor? Exempt? Non-exempt? Misclassified workers lose benefits and rights

The federal Fair Labor and Standards Act (FLSA) provides - in exhausting detail - what criteria employers should use to determine if their workers should be classified as "employees" or as "independent contractors." The same law offers guidelines for classifying workers as either "exempt or non-exempt," (essentially the difference between salaried and hourly employees). Contrary to popular belief, these labels are not interchangeable, and misclassifying workers can mean a huge difference to the workers themselves in the form of income and benefits as well as the government in the form of payroll taxes.

What does the term "misclassification" mean?

Unfortunately, the law is vague enough that companies around the country are either wittingly or unknowingly misclassifying their workers, which can mean that laborers lose out on millions of dollars a year in employer-provided benefits like health insurance and retirement accounts. In certain circumstances, independent contractors also might not qualify for overtime compensation or the full employment protections offered by the Americans with Disabilities Act (ADA) or the Family and Medical Leave Act (FMLA).

A different kind of misclassification occurs when deciding if employees should be labeled as "exempt" or "non-exempt." The big financial difference between those types of employees: qualifying for overtime compensation. There have been myriad so-called "wage and hour" lawsuits brought in recent years as employees have grown frustrated with unfair treatment and sought to force employers to pay them the overtime compensation they deserve. There were more than 10,000 such suits filed in 2012 alone.

Why is misclassification harmful?

Misclassification doesn't only hurt the employees themselves, though they do bear the brunt of the loss in the form of overtime pay. The government also suffers a huge deal in the form of lost income tax compensation for improperly classified contractor and non-exempt workers.

Making the right classification decision

The FLSA itself as well as guidelines offered by the federal Department of Labor guide employers in making the right decision about classifying their workers. Even so, there are likely millions of misclassified workers in the country today. Most employers are guileless, and have made an innocent classification mistake, but some are purposely acting improperly to save themselves money. They are misusing FLSA guidelines like those detailing the criteria for exempt employees. Under the law, exempt employees are those who:

  • Are paid on a salary or fee basis
  • Are given the authority to act using their own discretion
  • Perform purely "executive, administrative or professional" tasks
  • Perform solely office/non-manual functions

Employee misclassification is costly for everyone involved, and if you have been misclassified, there is a chance that your employer might be ordered to compensate you for lost wages/unpaid overtime, attorney fees expended in bringing a complaint against them, court costs and hefty fines levied by the government. To learn more about the issue of employee misclassification, speak with an experienced employment law attorney in your area.