There are a few missteps common among employers facing claims for unpaid wages from their current or former employees.
Employers often misclassify workers as independent contractors. Because independent contractors are not covered by the Maryland, D.C., Virginia or federal wage laws, companies are not obligated to pay them the required minimum wage or overtime. Yet many companies make mistakes in classifying individuals as independent contractors, as simply labeling a worker as a contractor is not enough. Paying them through a 1099 is not enough.
Courts and government agencies apply different tests for determining whether or not a worker should be labeled an employee or independent contractor. For example, the IRS uses the “common law” test which looks at three categories – behavioral control, financial control and the type of relationship. Within each category the IRS is evaluating several factors to determine the degree of control and the degree of independence of the worker. The more control that is asserted by the employer the more likely the worker will be deemed an employee. Other agencies use the economic realities test, which determines the existence of an employment relationship if a worker is economically dependent on the employer for continued employment. The Fair Labor Standards Act, which governs an employee’s right to minimum wage and overtime at the federal level, uses the economic realities test.
Employee misclassification has contributed greatly to the rise of wage disputes. Courts often find that a worker is truly an employee, not an independent contractor, and thus is protected by federal and state wage laws.
Many employers and employees believe that if a worker is paid “on salary,” they are exempt from overtime requirements. This is not always the case. While some exemptions apply when a worker is paid a salary, what determines eligibility for overtime pay is his or her activities, not how he or she is paid. If a worker is paid on a salary basis when they should not be and a claim is made, the employer must calculate the employee’s regular rate by dividing the salary amount paid in a given week by the number of hours worked in that week.
f the employee works more than 40 hours in a week, they must be paid time and a half (1.5 times their regular rate) for all hours over 40 that week.