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Do you know how to properly classify your employees?

If you own a business and you manage employees, you have to be vigilant about legal concerns in addition to running the day-to-day affairs of your company. One of the main concerns that many employers have is how to avoid running afoul of the law when it comes to hiring new employees and ensuring they are properly paid under state and federal regulations.

Although hiring and pay classification may seem like very straightforward topics, they can actually be potential minefields that can set employers up for lawsuits. Employee misclassification under the Fair Labor Standards Act is one type of lawsuit employers may face if an employee files a misclassification suit. Here are some facts you need to know surrounding this issue.

What is employee misclassification?

If you do not know what employee misclassification actually is, you are not alone. It has to do with the Fair Labor Standards Act, which is a federal regulation that covers issues such as minimum wage and overtime. Employers must remain in compliance with the FLSA in order to lawfully operate their business.

Employers can classify their employees as exempt or non-exempt from the FLSA. Therefore, the potential for misclassification starts at the point where you determine whether your employee is exempt or non-exempt from this federal standard. If you classify an employee as exempt from the FLSA and the employee is actually non-exempt, the employee can file a lawsuit to claim damages. Sometimes these lawsuits take the form of class action suits, which can be devastating to an employer from a financial and overall business standpoint. That is why it is critical to ensure that you properly classify your employees from the very beginning.

How can I avoid misclassification?

As mentioned above, the potential penalty of misclassifying your employees is that the employees could file a lawsuit and claim damages. Therefore, the potential for financial hardship on your business is significant. That being the case, you should take all steps possible to prevent accidentally misclassifying your employees. Inform yourself about the specific types of employees who are exempt from the FLSA. These are typically executive and administrative employees and highly compensated employees, but consulting with a professional may be a good idea if you are unsure.

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