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Misclassified Employees Can Mean Big Payouts

by Jennifer Carsen

In yesterday’s CED, attorneys Veronica Gray & E. George Joseph warned of the coming crackdown on misclassification of independent contractors. Today, classification factors considered by government agencies and the courts, as well as an introduction to a can’t-miss webinar next week.

Misclassification is high on the DOL and IRS agendas, so it’s a good place to look for problems, says Gray. Unfortunately, there is no single test for classification that fits all circumstances. Employers need to be aware of three tests plus court questions to make a determination, Gray says.

Gray and Joseph are both partners at the Orange County office of law firm Nossaman LLP.

1. The FLSA Economic Realities Test

  • The degree of control exercised by the alleged employer
  • The extent of the relative investments of the putative employee and employer
  • The degree to which the alleged employee’s opportunity for profit or loss is determined by the employer
  • The skill and initiative required in performing the job
  • The permanency of the relationship
  • The degree to which the service is an integral part of the employer’s business

2. The EEOC 16-Factor Test (Nonexhaustive)


Join us for Overtime Compliance in California: How to Master the Art of Calculating What’s Really Owed—next Thursday!


Indicators of an employment relationship:

  • The employer has the right to control when, where, and how the worker performs the job
  • The work does not require a high level of skill or expertise
  • The employer furnishes the tools, materials, and equipment
  • The work is performed on the employer’s premises
  • There is a continuing relationship between the worker and the employer
  • The employer has the right to assign additional projects to the worker
  • The employer sets the hours of work and the duration of the job
  • The worker is paid by the hour, week, or month rather than the agreed cost of performing a particular job
  • The worker does not hire and pay assistants
  • The work performed by the worker is part of the regular business of the employer
  • The employer is in business
  • The worker is not engaged in his/her own distinct occupation or business
  • The employer provides the worker with benefits such as insurance, leave, or workers’ compensation
  • The worker is considered an employee of the employer for tax purposes (i.e., the employer withholds federal, state, and Social Security taxes)
  • The employer can discharge the worker
  • The worker and the employer believe that they are creating an employer-employee relationship

3. The IRS 11-Factor Test

Behavioral Control

  • Instructions the business gives the worker.
  • Training the business gives the worker.

Financial Control

  • The extent to which the worker has unreimbursed business expenses.
  • The extent of the worker’s investment.
  • The extent to which the worker makes services available to the relevant market.
  • How the business pays the worker.
  • The extent to which the worker can realize a profit or loss.

Type of Relationship

  • Written contracts describing the relationship the parties intended to create.
  • Whether the business provides the worker with employee-type benefits.
  • The permanency of the relationship.
  • The extent to which services performed by the worker are a key aspect of the regular business of the company

A can’t-miss webinar that could save you thousands of dollars in wage/hour penalties. Join us next Thursday, the 17th.


4. Questions Courts Are Likely To Ask

Courts may ask the following questions to determine work relationship in addition to both an economic and an agency test, Gray says.

  • What degree of control does the employer have over work, and who exercises that control?
  • What is each party’s level of loss in the relationship?
  • Who has paid for materials, supplies, and/or equipment?
  • What type of skill is required for work?
  • Is there a degree of permanence?
  • Is the worker an integral part of the business?

Overtime Compliance in California: How to Master the Art of Calculating What’s Really Owed

Wage and hour class actions under state law—or “collective actions” under federal law— have emerged as one of the most significant employment law trends of the past 10 years.  Statistics from the U.S. Department of Labor estimate that almost 70% of employers aren’t in compliance with the Fair Labor Standards Act (FLSA)—a percentage that almost certainly increases when similar violations under state law are taken into account.

Non-exempt workers are entitled to overtime. That much we all know. But just how much overtime premium pay they’re entitled to in a given overtime workweek can get tricky when you factor in shift differentials, bonuses, incentive pay, piece-rates, commissions, and many other kinds of compensation, as well as the fact that some non-exempt workers may be paid on a salary basis instead of hourly.  

Failing to pay workers what they’re owed can have dire consequences for your organization since employees are usually entitled to an additional amount as liquidated damages on top of the unpaid wages—which could mean you’re on the hook for payouts that are far beyond the amount of any unpaid wages.

Join us next Thursday, February 17, for an in-depth, 90-minute webinar on how to master the art of computing overtime compensation—specifically for California employers.

Our expert—a seasoned labor and employment attorney whose practice is focused on wage and hour law—will discuss the issues that repeatedly trip employers up, providing sample calculations to illustrate where things can get tricky if you’re not careful.

You and your colleagues will learn:

  • How the “regular rate of pay” is generally figured
  • How bonuses factor into overtime pay calculations
  • What happens for purposes of calculating overtime if the employee works two jobs within the organization at two different rates of pay
  • Whether an employee can earn holiday and overtime pay in the same week and what effect, if any, that has on the overtime calculation
  • How shift differentials factor into to overtime calculations
  • How to calculate overtime for non-exempt salaried employees

Sign up now!

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