Introduction: What Is An Exempt And A Non-exempt Employee
Perhaps the worst mistake an employer can make is to classify a non-exempt employee as an exempt employee. A non-exempt employee must, generally speaking, be paid by the hour and paid time and one half for all hours over 40 in any one week. An exempt employee is subject to one of the exemptions set forth in the Fair Labor Standards Act (“FLSA”) and is paid an annual salary. By way of example, these exemptions include “executives” (subject to specific requirements as to the minimum weekly wage they must receive, number of people they must supervise, etc.), “learned professionals “(typically defined as having received advanced knowledge through a prolonged course of specialized intellectual instruction), “computer employees” (e.g., systems analysts, programmers, software engineers, etc.), “administrative” employees (earning at least $455.00 per week and performing office work, directly related to management, exercising discretion and independent judgment in their duties), “outside salespersons” (just what the name states) and “highly compensated employees” (those earning $100,000.00 or more, including a minimum of $455.00 per week paid on a salary or fee basis and performing at least one function of an administrative, learned professional or executive employee). The above is a thumbnail sketch. The United States Department of Labor, Wage and Hour Division, issues a “Fact Sheet” setting for such exemptions and the requirements to meet same. Currently Wage and Hour is proposing increasing the salary minimum for executives from $455.00 per week to $679.00 per week.
What Are The Consequences Of Misclassification Of Employees
Should an employee be misclassified, the consequences can be catastrophic. First, employers of a believed to be exempt employee who is actually non-exempt often fail to maintain time records for such an employee. In such a situation, the employee is permitted to estimate his/her hours of work, and any evidence (e.g., the employee’s own testimony) from which a reasonable inference may be drawn is sufficient for a trier of fact to determine an amount owed by the employer.
Second, there may be other employees similarly misclassified. As the statute calls for the plaintiff to be a representative of other similarly situated employees, there could be any number of additional employees to consider. The statute demands the employer provide the employee’s counsel with a roster of employees and their addresses for three years prior to the commencement of the action. This is to permit a notice be provided to all said employees, essentially saying if you want money, sign and return to Plaintiff’s counsel. As one might expect, this can result in many more Plaintiffs signing on.
Third, any wages that may be owed are to be doubled pursuant to the statute, plaintiff’s counsel fees are to be paid by the employer and interest is to be applied to the principal debt at approximately nine percent.
Therefore, a claim that may begin as one employee seeking $10,000.00 over a three year tenure, can mushroom into a seven figure claim in a heartbeat. First, employees will join the collective action, and the plaintiffs’ counsel will seek a class action under New York State Law doubling the time frame to six years. If nineteen (19) employees join the initial claim, the principal liability is now $200,000.00 for three years. For six years it is likely to reach $325,000.00 Doubled it is $650,000.00, add interest for a few years and the claim is now approximately $750,000.00. Add $250,000.00 in attorney’s fees = $1,000,000.00.
How Can An Employer Avoid Misclassification And Related Problems?
First and foremost, an employer should keep payroll and time records for every employee, regardless of whether considered hourly (non-exempt) or salaried (exempt).
Second, an employer can engage experienced labor counsel to perform a “labor audit” to assure all labor policies, including proper classification of employees, are both accurate and current. By way of example, absent such an audit, an employer may fail to provide and maintain signed wage theft prevention act forms pursuant to Section 195.1 of the New York Labor Law. (These forms advise the employee of whether he/she is salaried or hourly, what is his/her wage and when is payday, etc. They must be signed by the employee and be in his/her native tongue.) A failure to provide and maintain these forms generally results in a $5,000.00 per employee fine. 100 employees = $500,000.00.
Finally, the employer must comply with the advice provided by labor counsel.
The failure to properly classify employees for wage and hour purposes can be a grievous and remarkably expensive lesson for an employer to learn the hard way. The days of employers taking advantage of an unsophisticated work force (whether innocently or intentionally, a distinction without a difference for wage and hour laws) are long gone. Many employees today are well versed in wage and hour laws. Further some such employees bounce from employer to employer, staying just long enough to accumulate evidence against the employer and commence costly litigation.
In any event there is no reason to incur the costs of such litigation. It is far more cost effective to comply with the wage hour laws and assure such compliance by engaging experienced labor counsel to conduct an audit of the employer’s wage and hour policies.