Employment Relationship Misclassification: Is Your Company Ready?

HR Consulting

Employment Relationship Misclassification

Employers are about to be faced with the biggest change to the Fair Labor Standards Act (FLSA) in years. Will you be ready? Employers should take recent rulings and judgments against large employers as a wakeup call to get their house in order where FLSA is concerned.

The Department of Labor (DOL) is aggressively pursuing misclassifications of exempt employees as non-exempt and regular employees as independent contractors. Given the pending legislation that will make exempt classifications stricter in the very near future, we recommend you start reviewing salaries and job duties now. It is important to determine if persons working are classified as “independent contractors” or “employees,” as employees are afforded all the protections that come with that relationship, such as workers’ compensation and overtime.

According to claims made by the DOL, almost everyone should be classified as an employee. It is essential when determining classifications to know what employees actually do with the majority of their time, rather than their specific title, job description, contract or agreement they may have signed, or what others in your industry are doing.

Those at highest risk are the companies that use large numbers of similarly situated workers classified as contractors. In these cases, a company may face the risk of a large, collective action suit that can imperil its entire business model. Since the oil & gas industry has been especially under fire, we recommend companies in that industry review the relationships now.

For additional information, review the content provided in these articles:

  • FLSA White Collar Exemptions
  • Details on Pending Legislation

  • The Employment Relationship

    The Supreme Court has said that there is no definition that solves all problems relating to the employer-employee relationship under the Fair Labor Standards Act (FLSA). The Court has also made it clear that determination of the relationship cannot be based on isolated factors or upon a single characteristic, but depends upon the circumstances of the whole activity and the economic reality of the situation.

    Review the following for more information:

  • DOL: Misclassification
  • SHRM Administrator Interpretation Independent Contractors

  • Joint Employer: Fair Pay & Safe Workplaces Executive Order

    It is likely you have heard about the recent Browning-Ferris Industries decision issued on August 27, 2015 by the National Labor Relations Board (NLRB), but do you know what it means to you?

    A popular opinion with companies is, “I don’t have a union so it doesn’t mean anything to me,” and that is an inaccurate assumption. The new standard states that two or more employers are joint employers if they “share or codetermine those matters governing the essential terms and conditions of employment.” This means two or more entities are found to be “joint employers” of a single work force if they are both employers within the meaning of the common law and if they share or codetermine the essential terms and conditions of employment. This includes, but is not limited to, wages, hiring, firing, discipline, scheduling, or assigning work.

    How Does This Impact Your Company?

    The importance of this decision to the labor professional cannot be understated. Temporary staffing arrangements, subcontracting agreements, franchises, or other contractual relationships that involve the provision of labor from one employer to another should be reviewed to assess the degree of risk posed under the NLRB’s “restated” test.

    There is great potential for the ‘big guys’ to be held accountable for the sins of all the smaller locations or business under them so many larger companies are preparing for this outcome. Blakeman has seen and expects large employers will hold smaller employers accountable to regulations they would not normally fall under. The larger employer is concerned about being “the employer” under this rule and will be held accountable for the smaller company’s non-compliance with everything from FMLA to ACA.

    Employers should review all working relationships now to see which ones could fall into the Joint Employer Relation category and then review laws they are not already familiar with due to their size. The following resources provide more information:

  • Controversial NLRB Ruling
  • Forbes

  • What Should You Do?

    Blakeman recommends federal contractors review all the Executive Orders and any federal contract work to determine if they have any additional legally mandated requirements and, if so, to start preparing now for tracking and bidding purposes. Contact Blakeman for further advice on this or any other HR topic.

  • Executive Order 13658: Establishing a Minimum Wage for Contractors (effective January 1, 2016)
  • Executive Order 13665: Non-Retaliation for Disclosure of Compensation Information (effective January 11, 2016)
  • Executive Order 13706: Establishing Paid Sick Leave for Federal Contractors (effective January 1, 2017)
    • by Administrator
    • posted at 4:25 pm
    • October 23, 2015

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