Written by: Sarah Barickman, Esq.
Since 2021, the U.S. Department of Labor (DOL) together with state and local agencies have recovered more than $1.5 billion in back wages for more than 500,000 employees who were misclassified under the Fair Labor Standards Act (FLSA). That’s not just a compliance issue—it’s a costly mistake that can expose your organization to lawsuits, penalties, and reputational damage.
The Most Common Misstep: Exempt vs. Non-Exempt
Many employers assume that paying someone a salary automatically makes them exempt from overtime. Not true. To qualify for exemption under the FLSA, employees must meet both:
The Salary Test: Currently, employees must earn at least $684/week ($35,568/year). A 2024 rule aimed to raise this threshold to $844/week and later to $1,128/week, but legal challenges have delayed implementation.
The Duties Test: Employees must perform specific job functions under categories like executive, administrative, professional, or computer-related roles. Titles alone don’t count—actual job duties are what matter.
Job Titles ≠ Job Duties
Calling someone a “manager” doesn’t make them exempt. If they don’t supervise others or perform exempt-level tasks, they may still be non-exempt—even if salaried. Misclassification here means unpaid overtime, back pay, and potential legal exposure.
The Independent Contractor Trap
Misclassifying employees as independent contractors is another high-risk area. The FLSA uses an economic reality test to determine classification, focusing on:
- Employer control over the worker
- Worker’s investment in tools or materials
- Duration and nature of the relationship
- Whether the role is essential to the business
- Level of independent initiative and specialized skills
The Cost of Getting It Wrong
Misclassification can lead to:
- Retroactive payment of wages and overtime
- Unpaid taxes and interest
- Civil and criminal penalties
- Denied benefits (health insurance, retirement)
- Class-action lawsuits and reputational damage
Let’s Get It Right Together
Misclassification under the FLSA isn’t just a technical error—it’s a financial risk that businesses of all sizes can’t afford to ignore. Our employment practice specializes in helping companies navigate these complex rules with confidence. We’ll work with you to review job descriptions, assess actual duties, and align roles with your business goals—so you can avoid costly mistakes before they happen.
Download our free FLSA Checklist to begin your compliance review and contact our team if you’d like to schedule a personalized classification audit. Let’s protect your growth, together.
Sarah Barickman is a Partner at Barakat + Bossa PLLC, where she advises employers on a wide range of labor and employment matters, including wage and hour compliance, employee classification, workplace policies, and employment-related regulatory issues. She may be reached at sbarickman@b2b.legal.
This post is intended to provide you with general information regarding Employment Misclassification, yet its content does not constitute specific legal advice. For guidance tailored to your situation, please contact our team directly.
Reference:
Poydock, M., & Zhang, J. (2024, December 20). More than $1.5 billion in stolen wages recovered for workers between 2021 and 2023. Economic Policy Institute. Retrieved from https://www.epi.org/publication/wage-theft-2021-23/
