One of the most common violations of employers is employee misclassification and the two most common debates about employee misclassifications are employee vs. independent contractor and exempt vs. non-exempt in overtime.
To help you understand these employee misclassifications, here is an overview of the two arguments:
Employee vs. Independent Contractor
This type of employee misclassification is usually a result of an attempt of employers to save on employee payroll.
You see, employers are required to pay various federal and state taxes such as social security and unemployment taxes for their employees.
Not to mention various insurance coverage such as worker's compensation and state disability insurance.
That is not the case for independent contractors, since you treat them like a separate entity from your business.
However this misclassification can result in penalties from the IRS and lawsuits on unpaid wages.
So how do you know if the worker should be classified as employee or subcontractor?
According to the IRS, here are the three elements that you should look for:
Â· Behavior â Employers generally only have control over the output of independent contractors and not on the method. If the employer has control over how a worker does his job then he is an employee.
Â· Financial â If the worker provides his own supplies and equipment and is paid separately from the salary payroll then he is an independent contractor. If the employee is supplied with the resources and is paid through the payroll then he is an employee.
Â· Type of relationship â If the function of the worker is a key element of the business then the worker is an employee.
Overtime: Exempt vs. Non-Exempt
What most people do not know is that overtime exemption is decided by the function of the employee and not the title.
If a worker spends more than 50 percent of his time in production then he is non-exempt, regardless if his title is manager.
To be exempt, the employee's functions must fall under any of the following categories:
Â· Executive â Proprietors and other workers whose task is running the business or certain areas of the business.
Â· Administrative â Those who perform administrative tasks to help executives in running the business.
Â· Professional â Includes workers who need special licenses to practice such as doctors and lawyers, and workers who are in the artistic profession like singers and dancers.
Â· Software professional âWorkers who are involved in the development of software and are earning more than $41/hour.
Â· Outside Salesperson â Those who are tasked to make sales outside the workplace.
If you have been misclassified by your employer, consult an employment law attorney to know your legal options.