Below are four common mistakes with potentially serious consequences illustrated by today’s headlines:
- Identify Employees Based on Economic Reality, Not Titles or Labels
As a threshold matter, FLSA applies to “employees” but not to independent contractors or volunteers. In today’s gig economy, this distinction is crucial. The economic reality behind a working relationship governs whether workers are correctly identified as “employees” in the first instance, including:
- Whether the services rendered are an integral part of the principal’s business;
- Whether the worker exercises independent initiative and judgment in a freestanding enterprise operating in an open and competitive market;
- Whether the worker has invested in facilities and equipment;
- Whether the worker is subject to another’s direction and control;
- Whether the worker incurs profit or loss on work performed.
No one of these factors is dispositive. However, courts and the Department of Labor alike examine the economic reality behind the four corners of documents that purport to establish an independent contractor relationship. It is not enough that workers have the appearance of independence through contracts, LLC incorporations, and taxation on a 1099 basis.
4. Train All Employees to Observe FLSA Requirements
Both exempt and non-exempt employees should receive training in the basic requirements of the FLSA. For exempt employees, particularly those with responsibility for directly managing the work of others, this means respecting time before, during, or after working hours for which the employee is not paid. Non-exempt employees with remote access to employer computer systems or e-mail via work or personal communication device may perform compensable work not captured by the company’s timekeeping systems. Additionally, management-level employees must enforce the company’s timekeeping policies and practices vigilantly, e.g., punching in and out for lunch, ensuring no compensable work is performed off the clock, and so forth. Minutes per day of uncompensated time will add up to hours over two or three years, and may quickly escalate if uncompensated time multiplies across an entire workforce. Similarly, non-exempt employees should receive training in policies with multiple avenues of internal redress so that misunderstandings do not go unremediated until yet another wage and hour lawsuit hits the headlines.