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Misclassification: a threat to a worker’s FLSA protections

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Under the Fair Labor Standards Act, California employers have the responsibility of ensuring their employees are compensated correctly and fairly. In some situations, a company may classify a worker incorrectly, and it might infringe upon his or her rights as an employee. As such, it is crucial to understand how a classification is determined and what is being done to prevent miscategorization.

The U.S Department of Labor provides a litmus test for determining if a laborer is an employee. This includes factors such as the following:

  • Ascertaining the amount of control the organization has over the contractor
  • Verifying if the relationship between the contractor and company is perpetual
  • Checking the availability of the contractor in the open market
  • Determining the level of operational independence that the worker has
  • Figuring out how much stake the worker and company have in the success of the services being provided
  • Determining if the contractor has the ability to generate his or her own expenses, revenues and costs

Moreover, when a contractor's services are essential to the operation of an organization, the contractor may actually be an employee. If someone is mislabeled as an independent contractor, he or she loses deserved FLSA protections such as overtime pay and minimum wage.

This misclassification issue is significant, as reported by the Department for Professional Employees. In fact, approximately 30 percent of the companies audited in 2000 were found to have categorized workers as contractors when they were actually employees. As a result, government agencies continuously work to prevent mislabeling. Many states, including California, require firms to substantiate the status of their workers. This is because governments will assume that a person is an employee until proven otherwise. Additionally, the IRS performs regular audits to ensure that companies are accurately classifying laborers and paying the correct taxes. If it is established that a contractor has actually been operating as an employee, a company might find itself in a compromising and expensive situation.

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