Wage & Hour Insights - Guidance & Solutions for Employers

If you are a fellow tech junkie, you may already have heard about the flap over a marketer's use of homeless people as Internet hotspots at the South by Southwest (SXSW) Interactive technology conference in Austin, Texas.

According to the New York Times, BBH Labs, a unit of international marketing agency BBH, recruited 13 people from a local homeless shelter to serve as human 4G wireless hotspots at the conference as part of its Homeless Hotspots project. The "volunteers" were provided with mobile wi-fi devices, business cards and personalized t-shirts stating "I'm [Name], a 4G Hotspot." They were directed to go to crowded areas of the conference, where conference attendees could use the wireless hotspot service in exchange for donations. The project participants were paid $20 for the day, and were allowed to keep any donations received in exchange for the wireless service. 

Leaving aside the debate about whether this project is blatant exploitation or a brilliant effort to bring the problem of homelessness into the public eye (or both),* many have questioned whether BBH violated the FLSA by only paying its program participants $20 per day instead of the federal minimum wage of $7.25 per hour. So, did it?

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Check out my article in the October 2011 issue of Cleaning & Maintenance Management.  While focused on the cleaning and maintenance industry, the issues highlighted in the article are generally applicable to a wide range employers. 

Here's the link: Are You Due for a Wage and Hour Checkup?

The U.S. Department of Labor has specifically identified the janitorial industry as a target for enforcement actions, so employers in the industry are strongly advised to assess their vulnerability to wage and hour claims before the investigator or process server comes knocking. 

Earlier this week, the U.S. Department of Labor held a ceremony at which Secretary of Labor Hilda Solis signed a memorandum of understanding with the Internal Revenue Service to "improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections." The DOL also signed or has agreed to sign memorandums of understanding with officials in 11 states to coordinate efforts to crack down on independent contractor misclassification, including Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington. 

Although misclassifying workers as independent contractors can result in violations of numerous laws, including the tax code and wage and hour laws, the various government agencies charged with enforcing those laws have historically not shared information or coordinated their enforcement efforts. That now now appears to be coming to an end, as the DOL becomes more aggressive in its enforcement efforts and state and federal governments look for opportunities to enhance their revenues.

At the same time, the IRS has announced a new "Voluntary Classification Settlement Program" to encourage employers who have misclassified workers in the past to "get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit." To be eligible for this program, applicant employers must (1) consistently have treated the workers as nonemployes, (2) have filed all required 1099s for the workers for the prior three years, and (3) not currently be under audit by the IRS, DOL, or a state agency concerning the classification of the affected workers. Employers accepted into the program will be required to pay an amount "effectively equaling just over one percent of the wages paid to the reclassified workers for the past year." No penalties or interest wll be assessed, but for the first three years under the program, the employers must agree to an extended statute of limitations for the IRS to pursue payroll tax violations. Unfortunately for employers, the IRS program would not provide any amnesty for violations of other laws, such as state or federal overtime laws or state tax violations. The IRS announcement also makes no mention of whether the agency will shre information from the settlement program with the Department of Labor or other agencies. 

Because misclassification violations implicate a wide range of laws and frequently involve multiple workers, they can represent a significant liability for employers, particularly for small and midsize businesses without significant financial reserves to defend or settle these claims. Given the risks and the spotlight that the DOL is shining on this issue, businesses that use independent contractors should act now to ensure that their workers are properly classified. Among other things, this means making sure that when you classify a worker as an "independent contractor," you are prepared to prove that your classification decision is warranted under all of the relevant laws, including but not limited to the Fair Labor Standards Act, state wage and hour laws, workers' compensation statutes, and the state and federal tax codes. Unless you are well-versed in these laws, this is yet another area where a few hours of consultation with an experienced employment lawyer now may help avoid serious liability down the road.