In 1938, Congress passed the Fair Labor Standards Act that set national standards for a variety of labor conditions, including minimum wages, child labor and overtime pay for employees. The FLSA requires employers to pay overtime to all employees except those who are “exempt” under the law’s definition. Some employers try to get around the overtime requirement by calling employees independent contractors or classifying them as exempt from the overtime pay laws when employees really should be getting overtime. Workers in Arizona should understand the laws for classifying employees, in case they may be entitled to overtime and other benefits.
Employee or Independent Contractor?
The FLSA does not require business owners to offer the same benefits and protections to independent contractors as it requires for employees. As such, employers have often misclassified employees as independent contractors as a way to avoid paying not only overtime, but also Social Security taxes, Medicare taxes and unemployment insurance premiums. Employers also need not provide health insurance and other benefits to contractors in the same manner as they do to employees.
The more control an employer has over a worker, the more likely the worker is an employee and not a contractor. The IRS uses a variety of indicators to determine whether a worker is an employee or a contractor for tax purposes, including:
- Whether the employer controls the manner in which the work is accomplished
- Whether the employer trains the worker to do the job
- Whether the worker invests financially in the work
- Whether the employer reimburses the worker for business expenses
- Whether the worker has the possibility of both gaining and losing money on a job
Exempt or Non-Exempt Employee?
Even if an employer classifies a worker as an employee, the employer may still try to circumvent paying overtime by classifying an employee as exempt from overtime. The Department of Labor lists several jobs that are exempt from overtime pay, and some of the most common ways employers try to classify employees as exempt is through the salaried “executive, administrative, professional and outside sales” and “computer professionals” categories.
However, just because an employee earns a salary does not automatically exempt him or her from overtime pay eligibility. The person’s salary needs to be at least $455 per week to qualify as exempt. A person’s job title is not enough to make him or her exempt, either. Even if a person has “administrator” or “computer” in his or her job title, he or she may still be non-exempt based on actual job duties.