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Trying the most complex issues for over 30 years.

A common strategy for avoiding overtime wage rules can backfire

On Behalf of | Apr 20, 2024 | Employment Law

Businesses typically want to control operating expenses, and that goal may inspire certain creative solutions. Staffing costs are a top expense, and companies often do their best to control what they must pay to have workers performing key company tasks.

For example, an organization may hire hourly workers and then schedule them for as little time as possible. Doing so helps sidestep many of the costs associated with hiring workers on a salary basis. The company does not have a fixed obligation to the worker each week nor the same benefits requirements. However, paying workers on an hourly basis might mean worker ends up eligible for overtime pay because of their work schedule.

Employers sometimes use a different hiring strategy to avoid overtime obligations and other payroll expenses. This strategy can potentially backfire and lead to employment litigation against an organization.

Misclassifying workers can be a costly mistake

Companies have more than two options when they require the talent or labor of professionals. In addition to hiring hourly workers or salaried workers, companies can also employ independent contractors. Independent contractors are self-employed professionals who accept projects and contracts with a variety of different clients.

Companies may find that working with independent contractors provides an opportunity for skilled support without the legal and financial obligations that come with standard employment. For example, if an independent contractor works overtime, a company generally does not have to pay them extra wages for that additional time.

Employers also get to avoid the cost of workers’ compensation coverage and unemployment obligations. They can even eliminate payroll tax contributions made on behalf of employees by classifying workers as independent contractors. Provided that the professional truly is an independent contractor doing short-term work for the company, such arrangements can be beneficial.

However, if the company treats someone like an employee while calling them an independent contractor, then issues might arise. Workers who claim misclassification could take legal action against businesses. They could demand overtime and other unpaid wages.

The courts must look at employment arrangements and several key factors outlined by the government as opposed to just the terms of the contract that someone signed. If the courts agree that the business misclassified a professional, the worker may be eligible for unpaid overtime and other wage claims. The organization could also face responsibility for taxes and other standard financial contributions made on behalf of employees.

Carefully establishing employment arrangements is crucial for a company’s protection from employee-initiated litigation. Mistakes regarding the classification of a worker might lead to legal challenges and financial setbacks for a business.