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Employee vs. Independent Contractor: Wage and Hour Laws Explained

Employee vs. Independent Contractor: Wage and Hour Laws Explained

Wage theft is a large and growing problem in the United States

Employees are entitled to minimum wages and overtime pay in most circumstances. But independent contractors and exempt employees may receive fees, royalties, salaries or other pay that does not have an overtime component.

Many people are employees even though they may not be called that. Federal law defines an employee as someone permitted to work for someone else, but treats independent contractors as nonemployees in many instances. One of the factors that shapes employee status is length of the work relationship. Still, some independent contractors work for the same client for a long time, so other factors relate to how “independent” the person doing the job is: do they use offices or equipment provided by the client/employer, do they compete on the market with other vendors or contractors, do they submit to the client/employer rules or controls, or do they make a profit.

Courts often look to the day-to-day reality of work to decide who is an independent contractor. Some people who are supposedly independent contractors may do assignments very similar to those of people paid hourly and classified as employees. Some independent contractors may work eight or ten hours per day or more for the same client/employer, several days or even 5-6 days per week. Some supposedly independent contractors may submit to the scheduling needs of client/employer who instructors them where and when to show up on important days. They may have to or prefer to use the equipment or locations the client/employer provides to similar workers classified as employees. Their lunch breaks may be controlled, and their time to leave the workplace may be regulated. Their compensation may not be on market rates, performance, or bidding, but be matched up to hourly workers who are classified as employees. Some of these factors may not be true for all employees who are misclassified as independent contractors, and not all of them are necessarily required.

Calculating Hours Worked

Workers may suffer time theft when their hours are reported wrong on their paychecks. It is very important for workers who deal with machines or physical work to be paid every week so they do not lose the use of their income and they can check their hours. Supervisors or company systems may underreport work hours on a regular or non-isolated basis.

Sometimes this loss of worker hours is called the supervisor “shaving” hours. This may benefit investors or management in the company, who might like to obtain all the benefit from long hours of work without paying all the hourly pay required by federal law. In severe cases, time entries can be manipulated or faked to prevent overtime hours being blamed on a supervisor.

While a worker can also represent herself or himself in court, an attorney or law firm may help a worker confirm whether the Fair Labor Standards Act, New York Labor Law or other laws give her or him a right to more pay or pay for more hours of work. Under federal law, employers should pay eligible workers overtime pay for hours more than 40 hours in a single week, with overtime meaning time and a half or payment of 1.5 times the regular rate of pay. There are time records laws that help law firms determine the total hours a worker has spent on all work days, and the required extra pay for overtime hours.

Defining the Right to Overtime Pay

Job duties are relevant in wage and hour cases. Sometimes, job duties reflect that a worker is not part of managerial leadership, the professional departments, or scientific or artistic work. Other times, workers may not be eligible for overtime pay because they earn an adequate salary and their job duties are those of managers, doctors or lawyers, administrators, computer programmers, or cleaners or other help in private homes (not for a third-party contractor).

While a worker may do this herself or himself, an attorney or law firm may have experience in proving that workers classified as not deserving of overtime pay actually have a right to it. For example, in one case in which Aldi allegedly misclassified its store managers as “exempt” employees, the company later agreed to compensate certain store managers for unpaid overtime under federal and New York state law, such as store managers who clocked a certain number of hours over 40 a week.

Just because a worker is called store manager, assistant store manager, assistant manager, independent contractor, or office administrator does not mean that overtime does not have to be paid. There are federal and state regulations and court decisions limiting the freedom of an employer to redefine wage and hour categories. A lawyer or law firm may be able to develop evidence that the actual job duties of an employee entitle her or him to overtime pay.

Tipped Employees

Wage and hour law permits tipped employees to recover compensatory damages in many cases. As the U.S. Department of Labor points out, “Only tips actually received by the employee count when determining whether the employee is a tipped employee and in applying the tip credit.” The tip credit is used to bridge the gap between the tipped employee minimum cash wage of $2.13 per hour and the total federal minimum wage of $7.25 per hour. So the credit should be at least $5.12 per hour: ($7.25 – $2.13 cash wage = $5.12). State minimum wages are higher.

An employee is still entitled to overtime pay if the employer does not make sure that the tipped employee gets the applicable minimum wage and overtime pay. If the employee does not receive enough tips from customers, and cash wages per workweek, the employer may violate the obligation to pay the minimum wage and overtime.

Sometimes a restaurant, hotel, banquet hall, party hall, or other service business will try to avoid paying overtime to the wait staff, for example. A restaurant may try to classify its wait staff or other customer service staff as exempt from overtime pay by claiming that because they receive tips, they are like workers on commission at car dealerships, shoe stores, or other retail stores. Courts have sometimes rejected this tactic, stating that a service charge is really an employees’ “pay” and not a “tip.” Therefore, such service charges do not necessarily destroy the wait staff’s right to overtime pay on the basis that they are like retail sales staff on commission.

Leeds Brown Law P.C. is highly experienced in wage and hour class actions. In a case involving the grocery chain Aldi, it worked with other law firms to obtain a judge’s approval of $9.8 million settlement on behalf of store managers across the nation. A New York appeals court granted its motion to file a class action involving employees at Jenny Craig’s branches and locations in New York. A federal court in Long Island granted its motion to allow 2,000 financial service workers to opt into a settlement of their wage and hour claims. It has also been appointed to serve on a class action executive committee in a matter involving Walmart Inc.

Next steps

Workers who have been asked work off the clock, who see missing hours or wrongful tip deductions or missing tips, or have been misclassified as to overtime may benefit from a free consultation to make sure they are fully and correctly compensated for the hours you work.

It is important to know your rights when it comes to hourly pay, overtime, paychecks, and time worked off the clock. A free consultation can help you understand your rights and take action to protect them.


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