Risks of Misclassifying Employees in Washington DC
As a small business owner, you may not have a lot of experience in dealing with applicable employment and labor laws. One of the most important things you need to get right is your classification of employees. Ensuring that your employees are properly compensated can help reduce the risk of costly litigation. We recommend speaking with a knowledgeable Washington DC small business lawyer who can verify that all your current compensation practices comply with federal and local laws.
Not every worker in your business may receive the same protections and benefits under applicable labor laws. There is a loose classification of workers into either exempt or nonexempt classes. Nonexempt employees enjoy the greatest protection under labor laws, while an exempt person, like an independent contractor, would be afforded the least amount of protection.
When an employer misclassifies someone as exempt, which could be an independent contractor or someone on salary, this strips them of benefits they are due. By reviewing your classifications, you can ensure you are not depriving someone of benefits and protections owed.
Some employers try to avoid paying benefits by classifying someone as an independent contractor. Classifying someone as an independent contractor or paying them via a 1099 does not automatically qualify them as such. The courts and the IRS use various tests for determining who is truly an independent contractor. For the IRS, some categories include financial control, behavioral control, and the relationship type.
The more control you have as the employer, the more likely it is that the IRS will see the person as an employee. The economic realities test examines whether the worker is economically dependent on the employer for continued employment to determine if there is an employment relationship. The Fair Labors Standards Act, which governs overtime and minimum wage, relies on the economic realities test.
Salary versus Hourly Employees
Another common misclassification deals with salaried employees. Whether or not an employee is exempt from overtime depends on the employee’s activities, not how they are paid. If you misclassify someone as a salaried employee, you may owe them back wages and overtime. Determining who is a salaried employee is fairly complex in Washington, D.C. as there are local and federal provisions that protect some categories of employees while exempting others.
Minimum Wage in Washington DC
As of July 2018, the current minimum wage in the District of Columbia is $13.25 an hour. This applies to all workers, no matter the size of the company. Under the new law, there will be a progressive increase to $15 an hour that is effective on July 1, 2020. It will keep increasing each year thereafter in proportion to the Consumer Price Index increase.
Tipped employees are subject to a different minimum wage. This year, the wage increased from $3.33 to $3.89 per hour. If the employee’s tips when added to the base minimum wage do not meet the required full minimum wage, you must make up the difference.
If you are paying your employees based on the lower federal minimum wage standard or not meeting your tipped employee’s gap, you could find yourself at risk for a lawsuit.
Washington DC Business Attorney
If you have questions on classifying employees, it’s important to speak with a Washington DC labor and employment lawyer. Contact Tobin, O’Connor & Ewing at 202-362-5900 to schedule a consultation.