The Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, and recordkeeping requirements for most private and public sector employees. One of the most common issues employees face under the FLSA is being improperly classified by their employer so that they are treated as being exempt (not covered) from overtime.

Workers are also frequently deprived of their FLSA rights to overtime and other wage payments by being misclassified as independent contractors. Unlike employees, independent contractors are not entitled to minimum wage or overtime.

Both forms of misclassification can cost employees significant amounts of money in unpaid overtime or other benefits that they were legally entitled to receive.

Overtime and Misclassification of Employees

Under the Fair Labor Standards Act, employees are classified as either “exempt” from the law or “non-exempt.” Non-exempt employees are entitled to overtime pay at a rate of one and a half times their regular pay rate for any hours worked over 40 in a workweek. Exempt employees, on the other hand, are not entitled to overtime pay.

Many employers misclassify employees as exempt because they are paid a salary without evaluating whether the job duties and pay meet current legal standards. Even if an employee might seem exempt, an employer can still “blow the exemption” by making improper deductions from pay (such as docking pay for partial-day absences), which can destroy the salary basis requirement and make the employee entitled to overtime.

The three primary types of exempt employees are executive, administrative, and professional. Executive employees must manage a department or division, regularly supervise at least two other employees, and have the authority to hire or fire employees. Administrative employees must perform non-manual work that is directly related to the management or general business operations of the employer and have regularly exercised discretion and independent judgment with respect to matters of significance. Professional employees must perform work that requires advanced knowledge in a field of science or learning, and the work must be predominantly intellectual in nature.  

Classifying employees correctly under the FLSA can be complicated, and employers frequently get it wrong. Often, they choose to ignore the problem because addressing it would mean paying substantial overtime and facing significant liability for past damages. Given the complexity of these rules, it’s important to seek guidance from an attorney who practices in the area to understand your rights and obligations.

The fact that an employee’s job title suggests that they fall within one of the exemptions is not what ultimately matters. The key question in making the determination is the employee’s actual duties and responsibilities. For example:

  • A salesperson in a department store who is promoted to "assistant manager" and receives a pay raise does not meet the criteria for an exemption if their primary job duties remain the same, including working the cash register, stocking shelves, and greeting customers

  • A team lead might be incorrectly classified as an executive employee because they have some managerial responsibilities, but they may not meet the full requirements of the exemption, such as regularly directing two or more full-time employees and having a meaningful role in personnel decisions

Independent Contractor Misclassification

Employers sometimes classify workers as independent contractors to reduce costs, such as avoiding overtime pay, benefits, and employment taxes. However, simply labeling someone as an independent contractor or even having them sign an agreement stating so does not make it true. The real determining factor is the nature of the working relationship.

Courts assess whether a worker is an independent contractor by examining several key factors. These include the level of control the employer has over how and when the work is performed, whether the worker uses their own tools and resources, how the worker is compensated, and whether the work is a core part of the employer’s business. A central question is whether the worker operates independently, exercising judgment over how the work is completed, or whether they function as part of the employer's regular operations under close supervision.

Misclassification can have significant consequences, as workers incorrectly classified as independent contractors miss out on important legal protections, such as the right to minimum wage, overtime pay, and protection from discrimination under state and federal law.

Signs of Misclassification:

  • A person is classified as an independent contractor but has no real control over their work hours, location, or methods, and is instead tightly controlled by the employer. This may happen gradually as the employer increases control over the contractor, effectively making them an employee while continuing to pay them as a contractor.

  • An employer requires or allows the contractor to work solely for the company and disregards the fact that the contractor is economically dependent on the company, relying on it for their livelihood—even if the company claims to have limited control over their work.

  • A worker signs an employment agreement stating that they are an independent contractor but is required to work 40 hours per week, use the employer’s tools, and report to one of the employer’s supervisors.

Damages and Remedies

Employees who are misclassified may be entitled to recover unpaid overtime wages, an additional equal amount as liquidated damages, and attorneys’ fees and costs. These damages can be significant, especially when an employer’s violations are ongoing over multiple years.

Important Note About State and Local LaW

Some states and local jurisdictions have laws that provide greater protections than the FLSA. For example, some impose stricter tests for determining whether a worker is truly an independent contractor and allow additional damages beyond what the FLSA provides. State law may also differ in how unpaid wages, penalties, and attorneys’ fees are handled.

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