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HR Q&A: What happens if I misclassify employees?
From exempt vs. non-exempt, to employees vs. independent contractors, misclassifying your team members can result in serious trouble for your business, and it’s important to know what the consequences are.
Take a look at the expert advice below. You can learn more in our article about how to classify independent contractors, and we’ve also got a piece on labor law violation penalties to help you better understand what happens should you fall out of compliance.
What are the penalties and costs for misclassifying employees?
Answer from our HR Pro Kara, JD, SPHR:
The answer will depend on a number of factors, such as how many employees are misclassified, how much extra money they would have been paid if properly classified, and whether or not lawyers or regulatory agencies get involved.
Generally, if an employee goes to the federal Department of Labor (DOL) and claims that they’ve been misclassified, the DOL will investigate.
If the DOL determines that an employee—or entire group of employees—should have been paid overtime but wasn’t, the employee will be owed up to two years’ worth of unpaid wages (or up to three if the misclassification was “willful”).
The organization may also owe the employee or employees liquidated damages equal to the amount of money owed. So, if an employee should have been paid $2,000 in overtime, the organization may owe them $4,000. The organization would also owe the government taxes on those wages, as well as interest on the taxes.
Most states also have their own minimum wage and overtime laws, and often an organization can be held liable under both federal and state law, meaning the employee would be owed additional damages for violations of state wage law.
And if you are in a state with late payment penalties, the organization could owe additional damages for not having paid all wages by the time they were due. There’s also a very good chance that the organization will be held liable for attorney’s fees—both the organization’s and the employee’s.
On top of the costs mentioned above, there are potential federal civil penalties of $2,074 per violation (generally one penalty per misclassified employee), state penalties (which will vary), and in some cases the potential for jail time. Finally, statutory interest may immediately begin to accrue on the amount owed.
Employee handbook tips + Restaurant Revitalization Fund info
The Restaurant Revitalization Fund kicked off recently as part of the federal American Rescue Plan Act, and it’s important to apply as soon as possible if you need a grant. Check out our latest article to learn who’s eligible, how much you can get, and how to apply.
Homebase can also help with employee handbooks. Learn how to write one effectively, as well as how to avoid the most common employee handbook mistakes.
The $28.6 billion grant program recently launched—learn the ins and outs of how to apply and how much money you may be eligible to receive.
The bill includes several provisions aimed at helping small businesses, with an emphasis on relief for restaurants and bars that have been severely impacted by the devastating effects of the COVID-19 pandemic.
The beauty of an employee handbook is that your team can refer to it for answers to any questions they may have about important policies—so it’s important to write it effectively and cover all your bases.
Errors in your employee handbook can be problematic in the long run, and there are several common mistakes employers make when setting it up. Luckily they can all be easily avoided.
HR Q&A: What if a worker won’t sign our employee handbook?
One of our employees refuses to sign the handbook. What should we do?
Answer from our HR Pro Kara, JD, SPHR:
If that conversation doesn’t solve the problem, and you don’t want to terminate them, make it clear that failure to sign the handbook does not mean they’re exempt from the policies, procedures, or expectations it describes. They will be expected to follow the same rules and will be held to the same standards as their co-workers, regardless of whether they signed the acknowledgment.
If they still refuse to sign—even after understanding that their lack of a signature doesn’t get them out of following your policies—you’ll want to document that in some fashion.
For instance, ask them to write, “I refuse to sign” on the acknowledgment form and make your own note that you communicated that their refusal to sign didn’t mean they were exempt from your policies. If possible, call in another manager to serve as a witness to this conversation, and have them document what happened as well.