Wage and Hour Division (WHD)
U.S. Department of Labor
RALEIGH, N.C. -- Freeman & Associates Contracting Corp. of Raleigh has agreed to pay $20,088 in back wages to four construction employees following an investigation by the U.S. Department of Labor’s Wage and Hour Division that found employees were misclassified as independent contractors and, consequently, were denied overtime compensation under the Fair Labor Standards Act. The company also violated the record-keeping provisions of the FLSA. The affected employees worked for Freeman & Associates on the company’s contracts with McDonald’s Corp. to remodel some of its restaurants on the East Coast.
The department’s investigation determined that the employer misclassified employees as independent contractors and paid them straight-time rates for hours worked over 40 in a workweek, in violation of the FLSA’s overtime requirement to pay time and one-half their regular rates of pay for those hours. The employer also failed to maintain accurate records of employees’ work hours and wages, as required by the FLSA. These employees had worked for the contractor and had been considered employees until the employer changed their status to independent contractors and illegally stopped paying overtime.
“Far too often employers misclassify their employees as independent contractors to avoid paying them in compliance with the FLSA, as well as other federal, state and local statutes,” said Richard Blaylock, director of the Wage and Hour Division’s Raleigh District Office. “Misclassification costs taxpayers huge sums of money each year in uncollected employment taxes and gives unscrupulous employers an unfair advantage. The Wage and Hour Division is vigorously pursuing corrective action in those situations when workers are, in fact, employees to ensure that they are paid required wages and to level the playing field for employers who play by the rules.”
In addition to paying the back wages, the employer agreed to comply with the FLSA in the future.
The misclassification of employees as independent contractors presents a serious problem, as these employees often are denied access to critical benefits and protections—such as family and medical leave, overtime compensation, minimum wage and unemployment insurance—to which they are entitled. In addition, misclassification can create economic pressure for law-abiding business owners, who often find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state Unemployment Insurance and workers’ compensation funds.
Under the FLSA, employers must distinguish employees from bona fide independent contractors. An employee, as distinguished from a person who is engaged in a business of his own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he serves. For more information, visit http://www.dol.gov/whd/regs/compliance/whdfs13.htm.
The FLSA requires that covered, nonexempt employees be paid at least the federal minimum wage of $7.25 per hour for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per workweek. Simply paying employees a salary, a piece rate or a day rate does not exempt them from overtime protections. In general, hours worked includes all time an employee must be on duty, or on the employer’s premises or at any other prescribed place of work, from the beginning of the first principal work activity to the end of the last principal activity of the workday. Additionally, the law requires that accurate records of employees’ wages, hours and other conditions of employment be maintained.
The division’s Raleigh office can be reached at 919-790-2741. Information on the FLSA and other wage laws is available by calling the division’s toll-free helpline at 866-4US-WAGE (487-9243) and at www.dol.gov/whd.
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