An investigation by the US Department of Labor’s Wage and Hour Division found that a Michigan adult foster care company misclassified their residential healthcare providers as independent contractors. The misclassification caused seven workers at two of the company’s locations not to receive their full overtime wages, in violation of the Fair Labor Standards Act (FLSA).
Because the employees were misclassified as independent contractors, they were instead paid a fixed monthly salary for all hours worked. They were also deprived of other important employee protections such as unemployment insurance and worker’s compensation, and were fully responsible for paying Social Security and tax withholdings.
The investigation led to a recovery of $94,706 for the seven employees.
Wage and Hour Division District Director Mary O’Rourke, in Grand Rapids, Michigan, stated, “Residential healthcare workers provide vital services to adults unable to care for themselves and allow families some peace of mind knowing their loved one’s basic living needs are being addressed. In return, these workers deserve to be paid all of their hard-earned wages. Industry employers that fail to pay wages as the law requires have to remember that retaining and recruiting the people they need to do these jobs is more difficult as workers in today’s labor market can choose where, and for whom, they work.”
Issue:
The FLSA requires that, among other things, covered employers pay their nonexempt employees at least the federal minimum wage for every hour worked and overtime pay for every hour worked over 40 in a workweek, and it mandates that employers keep certain records regarding their employees. It is essential that individuals who determine workers’ classifications are knowledgeable about the differences between employees and independent contractors. Misclassification of an employee’s status can lead to violations of the FLSA which can result in fines and other penalties.
Discussion Points:
- Review your policies and procedures on hiring independent contractors. Determine if your policies clearly state the differences between an independent contractor and an employee. Update your policies as needed.
- Train all staff who have responsibility for ensuring fair wages, overtime pay eligibility, and recordkeeping about your policy and procedures, and ensure they demonstrate competence with the requirements. Document that these trainings occurred, and file each signed document in the employee’s education file.
- Periodically audit independent contractor’s contracts to ensure that the contract is valid and that the worker should not be classified as an employee.
