REPORT FROM THE U.S.—As the U.S. Department of Labor under the Obama administration is cracking down harder on violations, staying informed about employee misclassification is crucial for hotel operators if they want to avoid costly fines, according to employment attorneys.
“It’s very difficult for employers to comply with the law in all respects because it’s just so convoluted,” said Ron Chapman Jr., a labor and employment law attorney at Ogletree Deakins.
“(The hotel) industry in particular has a tradition of using staffing companies and other staffing arrangements to provide workers, and I think that industry tradition has provided problems for some hotel companies,” he added.
In March, the Labor Department launched an investigation into the hotel and motel industry in the Dallas and Fort Worth, Texas, areas after previous investigations found “significant and systemic violations” of the minimum wage, overtime pay and record-keeping provisions of the Fair Labor Standards Act.
Investigations conducted by the division’s Dallas District Office in 2011 found widespread FLSA violations, such as failing to accurately calculate hours worked at multiple job sites and paying housekeepers on a per-room basis without regard to hours worked or overtime, among others.
Steve Feldstein, partner in Goodwin Procter’s litigation department, said noncompliance with U.S. labor laws is mostly due to ignorance—but it sometimes stems from other motives.
For example, an employer might classify someone who is technically an employee as an independent contractor to save expenses.
“When someone is classified as a contract worker, the employer does not pay taxes on them,” Feldstein said.
In this case, misclassification also can be beneficial to employees because they can save on taxes as well, he said. There are many people out there who prefer to call themselves independent contractors for tax deduction purposes.
However, proper classification is crucial to ensure employees are compensated fairly across the board, Feldstein said. In the area of overtime pay, for example, the U.S. Fair Labor Standards Act requires employees to receive one-and-a-half times their hourly rate if they work more than the standard eight hours a day.
“When a person is hired as an independent contractor, they are paid a flat rate and there are no records kept of the hours they worked,” Feldstein said. Workers are not paid overtime if they are classified as independent contractors.
The classification of workers also dictates certain benefits employees are entitled to receive. In California, for example, full-time employees are entitled to paid meal breaks and unpaid rest breaks.
“If an employer is misclassifying people as independent contractors … and a court finds they misclassified, those individuals are entitled to be paid for the break they didn’t get. They are entitled to the overtime pay they did not get,” Feldstein said.
The law also applies to vacation, sick days, paid holidays and health benefits the employer provides. A full-time employee is entitled to these benefits while a contractor is not. Some employers misclassify workers to get out of providing these arrangements.
Feldstein suggests employers keep time and attendance records should the need for such evidence arise in court. If they show up empty-handed, the employee’s records will be viewed as fact in the eyes of the law.
Taking action now
Because employment laws often can be complicated, Feldstein suggests employers classify employees themselves by applying the “Right-to-Control” test.
The Right-to-Control test compares the ends versus the means in producing the work the employee was hired to do. If the employer is concerned with only the end result, the employee should be classified an independent contractor.
However, if the employer controls the means and methods of the project in addition to establishing the routine and schedule, it is likely the worker should be classified an employee.
Should an employer need further information, the U.S. Department of Labor website contains basic guidelines that serve as a good starting point, Chapman said.
“There are HR organizations such as (the Society for Human Resource Management) that conduct training and research and guidance on this law and others, which can be helpful,” he said.
Applying the law to a specific set of facts to determine whether or not that individual should be classified as an employee or independent contractor might require the help of an actual practicing attorney, Chapman said.
Hotel companies need to be ahead of the law, he said. “My suggestion is to do a self-audit … If you’re not compliant, you can take remedial measures to avoid fines from the Department of Labor.”