NFIB webinar explains independent contractor classification, overtime calculation, exemptions, and more
Small business owners regularly encounter wage and hour laws, a complex and often-misunderstood area of employment law. To help small businesses navigate this problematic area of the law, NFIB Small Business Legal Center Executive Director Beth Milito hosted a webinar focused on key wage and hour laws and how to stay in compliance with them.
Beth highlighted the NFIB Small Business Legal Center’s newly updated Wage and Hour Guide, which goes in-depth about issues related to independent contractor status and Federal Labor Standards Act (FLSA) compliance. “The guide is written in a way that I hope will be helpful for small businesses,” Beth said. “I know many small businesses do not have a dedicated human resource person to handle employment law, so we’re hopeful that the guide will help in those matters.”
Beth added that part of the Legal Center’s motivation to update the guide came from recent changes in the wage and hour laws across the US. “It’s a complex area of law that’s becoming more complex. Unfortunately, more and more states and local municipalities are enacting their own wage and hour laws layered on top of the federal law.” Beth added that the Biden administration has aggressively tried to crack down on wage and hour violations, with the Department of Labor home page boasting that they took 24,700 compliance actions affecting over 190,000 workers in 2021.
“Getting wage and hour laws wrong is expensive. Small violations can be multiplied over a large number of people, so even a minor infraction could turn into huge fines. It’s better to get it right the first time than try to clean up mistakes afterwards.”
First, Beth discussed how to determine whether a worker is an independent contractor. Independent contractors are not considered employees, so they are not covered by the various employment, labor, and tax laws. “Unfortunately, there is no single test,” Beth said. “Different labor departments have different tests, and the IRS has their own test too, believe it or not.” She went on to list the three main criteria for independent contractor status:
- Behavioral Control: Does the company control what the worker does and how the worker does their job?
- Financial Control: Are the business aspects of the worker’s job controlled by the payer? (e.g., are their expenses reimbursed, do they provide their own tools/supplies, etc.)
- Relationship of the Parties: Is there a written contract or employee type benefits to the worker?
Beth also cautioned that understanding of federal law alone isn’t sufficient for small business owners. “Plenty of things are not regulated under federal law: vacation pay, holiday pay, sick pay, severance pay, lunch periods, breaks, premium pay. Believe it or not, these are not regulated by federal law. But are they regulated by state law? You better believe it.” She went on to say that federal law sets a “floor” that state laws often build atop of and understanding both layers is essential.
Beth continued to discuss the complicated and often-misunderstood field of which employees are eligible and which are exempt from overtime pay. There are a variety of exemptions, and a number of myths surrounding which employees are or are not exempt. Beth also discussed the formula for calculating overtime pay and common mistakes made while doing the calculation, how to conduct an audit to ensure that your business complies with FLSA and state labor laws, and more.