Lessons for Employers from the US DOL’s $1.2 Million Settlement Announcement
The U.S. Department of Labor recently announced a $1.2 million settlement with a concrete contractor for multiple violations of the Fair Labor Standards Act, and employers can draw a number of lessons from this announcement as to widely varying topics: misclassification of employees as independent contractors, recordkeeping and payment, misclassification of non-exempt employees as exempt, and travel time.
Lesson #1 – Don’t Misclassify Employees as Independent Contractors. The contractor apparently misclassified 29 employees as independent contractors and, in so doing, violated their rights to overtime pay. Many employers would like to classify workers as independent contractors – perhaps it is a longstanding industry practice, or perhaps they are seeking to avoid the creation of an employment relationship and all the obligations that flow therefrom. Often workers would prefer to be designated an independent contractor to avoid having so many deductions from their pay. But calling a worker an independent contractor does not necessarily make them one. Nor does a history of treating them that way.
The DOL recently issued a Final Rule setting forth its standard for determining independent contractor status, as we discussed in our January 9, 2024 E-lert. The DOL uses a six-factor “totality of the circumstances” test, but employers should be warned that other federal and state agencies use other tests. It is important for employers to ensure that any individual it chooses to designate an “independent contractor” will meet the criteria for such a designation.
Lesson #2 – Keep Accurate Time and Pay Records. The Fair Labor Standards Act requires employers to pay non-exempt employees at least the minimum wage and overtime premiums for all hours worked over 40, and further requires employers to keep accurate records of the actual time worked and compensation paid to these non-exempt employees. Here, the contractor apparently failed to keep accurate records of the hours that employees worked or the compensation that it paid them. And even worse, it allegedly falsified records to make it appear that it paid workers overtime. Beyond the obvious lesson that employers should not falsify records, employers must ensure that they are accurately tracking and recording the actual time worked by non-exempt employees, and then paying them appropriately in accordance with those records.
Lesson #3 – Remember that Salaried Employees Might Still be Non-Exempt. In order to be properly classified as exempt from the FLSA’s minimum wage and overtime requirements, an employee must meet very specific salary and duties tests. One common mistake that employers make is to assume that if they pay an employee a salary, they are automatically exempt – which seems to be what the contractor did here. However, such employees might not be performing exempt duties and, therefore, they would still be found to be non-exempt. And that means an employer must keep accurate records of their hours worked and pay any necessary overtime (see Lesson #2).
Lesson #4 – Don’t Forget When Travel Time Must Be Paid. The contractor also apparently violated the rules on when travel time should be compensated. In our November 2020 E-Update, we discussed a DOL opinion letter that set forth these detailed rules. Generally speaking, normal commuting time from the employee’s home to their workplace, whether a fixed location or different job sites, is not considered compensable time. But once the workday starts, any travel time between worksites must be counted as hours worked. That includes situations where an employee is required to report at a meeting place to receive instructions or to perform other work there, or to pick up and to carry tools. The 2020 opinion letter provides more details around out-of-town travel, as well as many examples of various travel scenarios that may be either paid or unpaid.
