Employers face the constant challenge of regulatory requirements, which keep changing. To further complicate matters, compliance with employment obligations to employees varies from the employer’s home state to other states where remote employees work. An employer’s compliance failure, regardless of whether it was inadvertent or minor, could provide an employee with an opportunity for an employee to hold their employer liable for statutory violations. Employers and their employees should understand the rules for overtime pay, who can be a salaried employee and rules for employee classification, and what happens if wages are not properly paid.
Overtime Pay: An employer must pay an overtime wage of at least one and one-half times the usual hourly wage, computed on the basis of each hour over 40 hours that an employee works during a workweek. That calculation must be made for employees who do not have a professional degree, and who are not performing administrative or executive functions.
Employee Misclassification: We find that employees often misclassify a worker as an independent contractor, instead of as an employee. While the employer avoids paying unemployment, Social Security and Medicare contributions, the penalties are substantial if that independent contractor is really an employee. There are stringent requirements for independent contractor status which, in my experience, are frequently ignored.
Wage Payment and Collection: An employer must pay all compensation (wages, bonuses, commissions, benefits, overtime wages) on a regular payroll schedule and must comply with the form and frequency of wage payment, including payment of wages upon termination. For example, upon termination, in some states, vacation pay is due to an employee in full at the next payroll.
Summary: Failure to comply with overtime pay, employee misclassification, wage payment and collection subjects an employer to penalties including back wages, three times the employees’ wages (treble damages), reasonable attorneys’ fees and costs. What is considered reasonable attorneys’ fees varies from jurisdiction to jurisdiction. Nevertheless, in a recent dispute in the District of Columbia, an attorney with 10-years’ experience was awarded $700 per hour which the court considered to be reasonable!
Action Item: We recommend that all of our employer clients review all employment-related classifications and payroll practices on a regular basis. If you have questions related to this or other issues related to employment compliance and law, please call Jose Espejo at (301) 251-1180.