While it’s not out of the ordinary for home builders and their employees and contractors to put in long hours, new regulations about overtime are causing many building firms to take another look at their policies.
Since many workers are salaried, employers rarely consider if they should be paid overtime until that unwelcome day when a Department of Labor (DOL) rep knocks at their door to investigate a wage-and-hour lawsuit that has been filed against them. Then they have the unwelcome task of facing a costly lawsuit for failing to comply with the Fair Labor Standard Act (FLSA), along with concerns that other current and former employees may join the litigation.
How businesses classify workers is once again in the center of the target for the DOL. According to the administrator of the DOL’s Wage and Hour Division (WHD), an increasing number of employers are misclassifying employees as independent contractors or exempt from overtime and, in turn, risking exposure to unpaid overtime, back wages, back taxes and significant penalties.
Seeking to encourage improved employer behavior and a more generous and broader definition of who is an employee, the WHD issued a recent memo that provides a multi-pronged approach to evaluate the employer’s control over worker behavior and financials. The memo re-classified many former independent contractors as employees through application of the “broader economic realities of the working relationship” between the employer and employees.
It is particularly important for BUILDER readers to note that the WHD has specifically stated its intent to aggressively target construction industry businesses for enhanced review and scrutiny. In that light, construction industry employers should proactively ask themselves the following questions as to current employee classifications:
Is the Relationship Between the Worker and the Employer Permanent or Indefinite?
The more permanent and longer the relationship between the business and the worker, the greater likelihood the relationship is one of an employer and employee.
Is the Work Integral for the Employer’s Business?
When the activities performed by the worker are integral to the employer’s business, the worker is likely economically dependent on the employer and considered an employee. As but one example, the DOL has specifically ruled that carpenters hired to frame homes for a builder are classified as employees essential to the home builder’s business.
Does the Worker’s Managerial Skill Impact the Opportunity for Profit or Loss?
Where a worker’s profits and losses will be impacted by his authority to hire other workers, advertise, purchase materials and equipment, and set work hours, such factors support an independent contractor classification. An employment relationship will alternatively be in place if a worker’s earnings are only tied to the number of hours the employee works.
Is the Worker’s Relative Investment Higher than the Employer’s Investment?
If the worker has made investments beyond the specific job in equipment, tools, advances and other costs, such investments support the independent contractor classification. Where a business provides a worker with insurance, use of a vehicle, and all the equipment and supplies required for the job, the worker is an employee.
Is the Worker Required to Have Special Skills and Initiative?
Though technical skills are not the only determining factor, the worker’s business skills, judgment and initiative should be considered to determine whether the worker operates an independent business. If the worker is economically dependent on the business, such dependency would support an employer/employee relationship.
What Control Does the Employer Have?
In today’s business environment with continuous communication via smartphones, flexible work arrangements and instant response expectations, employers may have limited control over the number of hours employees actually work. Despite such factors, the absence of continuous supervision and control over workers who rely on the business financially does not alter the employer/employee relationship.
The DOL has issued the warning that it will more aggressively investigate and prosecute FLSA misclassification claims. Construction industry employers should immediately and proactively examine any independent contractor relationships and if they need to be altered to employee arrangements. The risks, costs and potential exposure to your business are far too great to not review, address and correct these concerns prior to the DOL knocking at your door.