No, misclassification of employees as independent contractors is an alarming trend, particularly in industries that employ many low-wage workers and in which the U.S. Department of Labor’s (DOL) Wage and Hour Division historically has found significant wage violations, such as the restaurant industry.

In a similar case, a group of restaurants contracted with a staffing agency to move existing employees to the staffing agency’s payroll. The restaurants set the hourly rate the employees would be paid and reported the number of hours each employee worked to the staffing agency. Although the employees had received overtime pay when they were on the restaurants’ payrolls, the staffing agency paid them “straight time” at the rate set by the restaurants for all hours worked, including overtime hours, and failed to withhold tax deductions from their wages. New workers were also put on the staffing agency’s payroll.

As a result of the misclassification, the employer violated the Fair Labor Standards Act (FLSA) by denying the workers proper compensation for all hours worked. Employers who violate the FLSA are, as a general rule, liable to employees for their back wages and an equal amount in liquidated damages. Here, the DOL recovered over $200,000 in back wages and liquidated damages for the restaurant employees who were misclassified as independent contractors.

In addressing the trend of misclassification, the Wage and Hour Division plans to coordinate with state agencies responsible for enforcing state laws that address such violations and also may refer these types of cases to the Internal Revenue Service.

Source: U.S. Department of Labor, Wage and Hour Division Press Release, March 7, 2011.