Misclassify an employee, chances are you’ll pay double — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Misclassify an employee, chances are you’ll pay double

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in Human Resources

The Fair Labor Standards Act (FLSA) is an unforgiving master—you’ll pay if you misclassify an employee without solid, good-faith reasons. Hourly employees that you incorrectly designate as exempt will collect more than time-and-a-half for the overtime they worked. Courts routinely double the back pay.

If you have doubts about how to classify employees, educate yourself.

  • Read up on the FLSA and how to classify employees under the recently updated regulations (www.dol.gov/fairpay).
  • Request an opinion letter from the U.S. Labor Department. If you make the request before anyone questions your classification, and you provide the agency with all relevant information, chances are the court will say you acted in good faith. Learn more at www.dol.gov/esa/whd/opinion/opinion.htm.
  • Have an experienced attorney review your job descriptions to make sure you haven’t made any obvious errors. It’s another way to show good faith.

Then, do your own annual classification audit, comparing all employees’ updated job descriptions with their actual duties.

Recent case: Rahaman Khan worked for IBI Armored Service on the company’s truck dock. IBI classified Khan as exempt under an obscure exception to the FLSA that excludes from the law some dock workers who load trucks. Instead, they are regulated under the Motor Carrier Act (MCA), which doesn’t require overtime pay.

Khan sued for unpaid overtime, claiming he wasn’t really a “loader,” the exempt category. Khan and IBI agreed that if he was covered by the FLSA, he was entitled to $7,744 in unpaid overtime.

The court concluded that Khan was not a loader because his actual duties did not involve getting on trucks and placing cargo. IBI couldn’t show that it relied on expert opinions, Labor or Transportation Department guidance or anything other than its own assertion that Khan was exempt. In such cases, wrote the judge, “double damages are the norm.” It ordered IBI to pay Khan $15,488. (Khan v. IBI Armored Services, No. 1:04-CV-762, ED NY, 2007)  

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