Is Your Employer Misclassifying You to Avoid Overtime Pay?
Employing people comes with certain obligations, including paying overtime rates when employees work more than a certain number of hours a week. Some employers exploit what they see as “loopholes” in the law to avoid the extra cost. Our Syracuse employment law attorney examines how employers misclassify workers to avoid overtime pay in New York State.
How Employers Misclassify Workers to Avoid Overtime Pay
There are two types of misclassification that employers attempt to exploit when trying to duck certain obligations to employees. The first of these is to misclassify employees as managers. While that job title may feel flattering, the National Bureau of Economic Research (NBER) points out that your employer may not have your best interests at heart.
The NBER points out that employers can cut overtime costs by as much as 13.5% by exploiting a provision that managers earning over a certain threshold are not entitled to overtime pay. The strategy is simple. The employer pays a wage just over the threshold and allocates a “managerial” title to an employee who does non-managerial work.
The US Department of Labor (DOL) notes that this is not the only approach to avoiding overtime payments. Some companies misclassify people who are really employees as “independent contractors.”
In its guidance on independent contractor status in New York State, the DOL applies the principles of supervision, direction, and control. If these are present in a working relationship, there is a strong possibility that you are an employee, not a contractor.
Is it Legal to Misclassify Employees So That Employers Have Fewer Obligations?
Misclassification negatively impacts employees and reduces government tax revenue, making it a form of tax fraud. The IRS cautions employers that if they are found to have misclassified workers, they may be liable for back taxes.
From an employment law perspective, an employer who misclassifies employees to avoid overtime pay is denying them a basic right. In New York, employees who work more than 40 hours a week are entitled to overtime pay. Misclassification may also affect other rights. For example, an independent contractor is not eligible for workers’ compensation if they are injured at work.
The business community is an additional victim since law-abiding employers with realistic overtime costs are placed at a competitive disadvantage. In short, if your employer is misclassifying you to avoid overtime pay, they are on the wrong side of the law.
Red Flags Indicating Your Employer May Be Misclassifying You to Avoid Overtime Pay
You may have a suspicion that you have been misclassified. This would typically apply to people with managerial job titles and those who are regarded as independent contractors. Neither of these designations necessarily means you have been misclassified, so your next step is to dig a little deeper and do some thinking.
Are You Really a Manager?
Some employees believe that they cannot claim overtime because of their job titles. However, there is more to management than a name. Ask for a copy of your job description and consider what a manager typically does in your line of work. If you have no control over decision-making that affects revenue, production, or productivity, you are very likely not a manager.
The Financial Post reports on this, using the example of “Director of First Impressions” as a job title for an employee who is, in reality, a receptionist. Nationwide, this type of misclassification for overtime pay avoidance costs workers up to $4 billion per year.
Are You an Independent Contractor?
The DOL’s guidance on employee relationships may help unravel your true standing. Broadly, it specifies that economic reality is a guiding principle. If an analysis of your situation shows that you are economically dependent on an employer for work, you are likely to be considered an employee.
What You Should Do if You Believe You Have Been Misclassified
Confronting employers can be intimidating, especially when you are effectively challenging their compliance with employment law. You may be justifiably concerned about retaliation. In addition, many employment contracts specify that employee complaints should be handled in a confidential arbitration process, so you cannot get support from like-minded workers in a group action.
However, it could be well worth your while to stand up for your rights. If your employer’s avoidance of overtime payments has been going on for a considerable time, you may be owed a significant amount of back pay. It would be advisable to consult an employment lawyer before undertaking this process. Gatusso & Ciotoli, PLLC can advise you.