$176,000 in Back Wages for Misclassification of Employees as Independent Contractors

Friday, June 14, 2013

Ratech Construction Inc. has paid $176,204 in back wages to 17 maintenance employees following an investigation by the U.S. Department of Labor’s Wage and Hour Division, which found the employees were misclassified as independent contractors and, consequently, were denied overtime compensations in violation of the Fair Labor Standards Act.

Ratech is a general contractor that provides services to heavy industrial and commercial sector construction projects throughout Texas. An investigation by the division’s Dallas District Office found that Ratech provided maintenance employees to Hanson Aggregates LLC, a mining operation in Bridgeport, but misclassified these employees as independent contractors and paid them straight time wages, rather than the required overtime premium for hours worked over 40 in a workweek.

Following the investigation, Ratech paid all back wages due to the affected employees. The company also agreed to maintain future compliance with the FLSA by ensuring that employees are properly classified and compensated for all hours worked, in accordance with the act.

The misclassification of employees as independent contractors presents a serious problem, as these employees often are denied access to critical benefits and protections, such as family and medical leave, overtime compensation, minimum wage and unemployment insurance, to which they are entitled. In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state Unemployment Insurance and workers’ compensation funds.

Under the FLSA, employers must distinguish employees from bona fide independent contractors. An employee, as distinguished from a person who is engaged in a business of his own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he serves. 

The FLSA requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Additionally, employers must maintain accurate time and payroll records.

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