$395,465 in Back Wages to Misclassified Employees

Monday, December 16, 2013
Norwood Commercial Contractors Inc. has agreed to pay 96 workers $395,465 in back wages and liquidated damages following an investigation by the U.S. Department of Labor’s Wage and Hour Division. The investigation found that the commercial construction contractor misclassified 16 workers as independent contractors and denied them and the remaining employees proper compensation for all hours worked, in violation of the Fair Labor Standards Act’s overtime and record-keeping provisions.

The investigation determined that employees—such as carpenters, electricians, masons, laborers, painters, and drywall hangers and finishers—were misclassified as independent contractors and were denied proper compensation, in violation of the FLSA. Many of these employees were not paid overtime premiums at time and one-half their regular rates of pay for hours worked beyond 40 in a workweek, and they were not paid for travel time to and from assignments when employees worked away from home. Additionally, the company took illegal deductions from employees’ pay in overtime workweeks and banked some overtime hours to be paid at straight time in future workweeks. The investigation also alleged that the employer reduced the number of hours worked when processing payroll, in violation of the FLSA’s record-keeping provisions.

Norwood Commercial Contractors and the company president, Douglas Hudson, have signed a consent judgment to resolve a lawsuit brought by the department before the U.S. District Court for the Northern District of Illinois, Eastern Division, in Chicago.

Under terms of the consent judgment, in addition to paying the back wages and damages found due, the company has also agreed to a variety of enhanced compliance provisions. The employer has agreed to designate a compliance officer to act as a liaison with the Wage and Hour Division, and to provide employees with specific Wage and Hour compliance information, including contact information for the division. The employer has also agreed to maintain accurate payroll records; to provide full access to payroll records during visits by the Wage and Hour Division; to give a minimum of two presentations on compliance with the FLSA to contractor’s associations; and to create online informational tools, including information on FSLA compliance, on the company’s website. The company will also create a compliance-related question-and-answer forum on its Facebook page.

The misclassification of employees as something other than employees, such as independent contractors, presents a serious problem for affected employees, employers and to the economy. Misclassified employees are often denied access to critical benefits and protections, such as family and medical leave, overtime, minimum wage and unemployment insurance, to which they are entitled. Employee misclassification also generates substantial losses to the U.S. Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers’ compensation funds.

Under the FLSA, an employment relationship must be distinguished from a strictly contractual one. An employee, as distinguished from a person who is engaged in a business of his or her 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, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour 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. Employers are required to maintain accurate time and payroll records. 
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