NEW ORLEANS – Two Gulf Coast staffing agencies have agreed to paid 353 workers nearly $516,000 in back wages after U.S. Department of Labor Wage and Hour Division investigators found they classified employees incorrectly as independent contractors and mislabeled wages as per-diem reimbursement for expenses never incurred.
Federal investigators found RBT Welders LLC and Contractor Labor Services LLC owed back wages to welders and pipe fitters who worked on maritime vessels and oil and gas industry projects in Louisiana and Texas. RBT paid $398,379 to 246 workers and Contractor Labor Services agreed to pay $118,128 to 107 workers for overtime violations under the Fair Labor Standards Act.
The investigations were part of an ongoing, multi-year initiative to curb the pervasive practice by staffing agencies to attribute part of an employee’s wages wrongfully as per-diem payments, often to avoid or reduce overtime, payroll taxes and other costs. Division investigators are monitoring staffing agencies and other employers throughout the 1,600-mile Gulf Coast region for signs of this practice.
The division found that RBT Welders and Contractor Labor Services:
- Attributed a portion of workers’ wages wrongfully as per-diem payments, rather than wages for hours worked, even though they did not incur lodging, meals and travel expenses as part of their employment. The practice based employees’ overtime hourly rate on an artificially lower rate, which excluded this mislabeled “per diem.”
- Attempted to reduce their share of federal and state taxes, workers’ compensation, unemployment insurance and Social Security by designating wages as per diem pay, not subject to these costs.
“Illegal per diem practices hurt law-abiding employers, defraud local, state and federal governments, and leave taxpayers in the Gulf Coast region and across the nation picking up the tab,” said Betty Campbell, regional administrator for the Wage and Hour Division in the Southwest. “Employers using this scheme gain an unfair advantage by lowering their labor costs while undercutting their own employees’ wages. They also compromise the benefits their workers would be entitled to receive in the event of a layoff, workplace injury or even at retirement.”
The Contractor Labor Services investigation also determined that the firm had misclassified employees as independent contractors. The practice resulted in overtime violations of the FLSA when the employer paid the misclassified employees an additional $2 per hour for overtime instead of the legally required time and one-half. Like the per-diem scheme, employers who misclassify attempt to shield themselves from business costs associated with overtime obligations, unemployment insurance, worker’s compensation premiums, unemployment insurance and Social Security payments required for employees.
Both staffing agencies signed agreements with the department to resolve concerns that surfaced in the investigations. The agreements require RBT Welders and Contractor Labor Services to:
- Not advertise that workers will receive per-diem payments as a part of the their regular rate of pay or otherwise suggest in any way that workers may receive per-diem payments regardless of how close the worker lives to the assigned work site.
- Issue genuine per-diem payments only to employees who incur expenses on behalf of the employer.
- Identify those employees who qualify for real per-diem payments for lodging, meals, mileage or fuel expenses based on their incurring actual, reimbursable expenses on behalf the employer.
- Ensure that employees do not receive per-diem payments that correspond directly with the number of hours worked.
- Communicate, and ensure employees understand and acknowledge what constitutes a legitimately reimbursable expense that is excludable from the regular rate of pay.
The investigation also found that the staffing agencies and the client companies that used the services of the welders, pipe fitters and other craft workers employed them jointly. Had the staffing agencies failed to resolve the violations disclosed by these investigations, the department could have held the client or host companies responsible.
Employers must distinguish employees from actual 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.
For more information about federal wage laws, or to file a complaint, call the Wage and Hour Division’s toll-free helpline at 866-4US-WAGE (487-9243) or its New Orleans District Office at 504-589-6171. Information also is available at http://www.dol.gov/whd/.