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Wage and Hour Division (WHD)

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U.S. Department of Labor
Wage and Hour Division
Release Number: 12-1787-CHI

Date: 

Sept. 12, 2012

Contact: 

Scott Allen or Rhonda Burke

Phone: 

(312) 353-6976

US Department of Labor investigation finds more than $63,000 in back wages due employees at 3 Sheila’s Bakery locations in Michigan


Employees misclassified as independent contractors, denied overtime pay

DETROIT -- Sheila's Bakery LLC has signed an agreement with the U.S. Department of Labor to pay a total of $63,229 in back wages to 21 employees after an investigation by the department’s Wage and Hour Division determined that the Mexican bakery chain committed violations of the Fair Labor Standards Act at its three locations.

Investigators found that employees had been misclassified as independent contractors and consequently did not receive overtime pay as required by the FLSA. Employees either were paid a flat rate for all hours or received a flat weekly cash salary between $340 and $400, and were not compensated at time and one-half their regular rates for hours worked beyond 40 per week. The bakery also failed to maintain accurate time and payroll records.

“Employers are responsible for recording all hours worked by their employees and ensuring that they are properly paid,” said Nancy Bowlby, acting district director of the Wage and Hour Division in Detroit. “Employers cannot simply absolve themselves of their responsibility to pay proper wages and overtime to workers by classifying them as independent contractors. We are committed to ensuring a level playing field for all businesses and employers who abide by the rules.”

In addition to paying the back wages owed, Sheila’s Bakery and owner Fidencio Espejel have agreed to comply with the FLSA in the future, have implemented time card procedures to assist with maintaining accurate records and will conduct FLSA training for their staff at all locations. The chain employs about 25 workers between two locations, one in Detroit and one in Pontiac.

The misclassification of employees as independent contractors presents a serious problem for affected employees, employers and the entire economy. Misclassified employees often are denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and Unemployment Insurance – to which they are entitled. Employee misclassification generates substantial losses to the U.S. Treasury and the Social Security and Medicare funds, as well as to state Unemployment Insurance and workers’ compensation funds. Misclassification also creates a competitive disadvantage for employers who comply with the law.

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 or her 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 or she serves. For more information, visit http://www.dol.gov/whd/regs/compliance/whdfs13.htm.

The FLSA also requires that covered employees be paid at least the federal minimum wage of $7.25 for all hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Earnings may be determined on a piece-rate, salary, commission or some other basis, but in all such cases the overtime pay due must be computed using the employee’s average hourly rate. Employers are also required to maintain accurate time and payroll records.

The department has created a smartphone application, available at http://www.dol.gov/dol/apps, to help employees independently track the hours they work and determine the wages they are owed. Available in English and Spanish, users conveniently can track regular work hours, break times and any overtime hours for one or more employers. This new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records.

To learn more about the FLSA’s requirements, call the division’s toll-free helpline at 866-4US-WAGE (487-9243). Information also can be found at http://www.dol.gov/whd.

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U.S. Department of Labor releases are accessible on the Internet at www.dol.gov. The information in this news release will be made available in alternate format (large print, Braille, audio tape or disc) from the COAST office upon request. Please specify which news release when placing your request at (202) 693-7828 or TTY (202) 693-7755. The Labor Department is committed to providing America’s employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit www.dol.gov/compliance.