Employment law is a complicated topic and one that is very boring for a lot of people. Personally, I find it fascinating and consider myself lucky to be able to do so. There are many different laws, rules & regulations which apply to Construction Industry companies. Sorting through all of that red tape & legislation can be hard even for attorneys. So, this month, in order to convey as much useful information as possible to readers, I decided to share the most common Employment law violations I see in the Construction Industry.
Misclassification of Workers:
This is a huge problem for the industry. Many companies do not want the extra work that comes along with hiring employees and figuring out payroll. So instead of hiring their workers, they treat them as ‘Independent Contractors’ or ‘Subcontractors’. There is a common misconception it is compliant to have a worker sign an independent contractor agreement and issue them a IRS form 1099 at the end of the season. Unless a worker is truly an independent contractor, then taking these steps will not matter if the business is ever audited by the Department of Labor. When DOL comes calling, they look at the circumstances under which the work was taking place. If the worker is paid by the hour, does not bring their own tools to the jobsite, and their work is controlled by the business, chances are they will be classified as an employee by DOL. Then, the business will owe back taxes on the worker and possibly back overtime pay in addition to any fines and penalties which are assessed by DOL.
Not Paying Overtime:
Time and again people tell me that they don’t think it is fair that they should have to pay overtime for seasonal work. Whether or not it is fair could be the subject of a very long discussion. What matters however, is that it doesn’t matter if it is fair, just that it is not legally compliant. Even if the employees agree to not being paid overtime, that does not make it compliant. During a DOL audit, unpaid overtime will be assessed for any hours over 40 in a given week, regardless of how well paid the employee is at their regular pay rate. If the DOL audit is random, the assessment will go back 2 years. If the audit is triggered by an employee complaint, the audit can go back 3 years. Bottom line is that employees must be paid overtime unless they qualify for an exemption from overtime. Employees whose job is performing labor are generally not going to qualify for any exemptions. While there are some exemptions, many times they are applied incorrectly which leads me to the 3rd common violation of employment law.
Paying Salary to Foremen:
Whether it is to provide financial security for their foremen, or to avoid dealing with overtime pay, many companies believe that it is legally compliant to pay their foreman a salary and not pay them overtime. Unfortunately, this is wrong. The Fair Labor Standards Act (FLSA) requires that all workers that perform manual labor must be paid overtime. The definition of manual labor includes things like operating a skid steer and on site supervision of other workers. If a DOL audit takes place, they will assess back overtime pay for salaried foremen, no matter how well paid the foremen are. They calculate back pay based on the hours which were worked in excess of 40 for all weeks that went over 40 hours. The assessed rates are generally time and a half, so with well-paid foremen, things can add up very quickly.
These are the most common violations of employment laws which I see in the Construction Industry. While there are some exemptions and special circumstances which allow businesses to pay less in overtime, they are not a good fit for all companies. Before the season gets in full swing, take a look at the employment practices of your company. Do any of these issues look like they may need addressing? Take action now so that you do not regret it later if you are audited by the Department of Labor.