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Employers Misclassify Employees to Avoid Paying Overtime


The National Bureau of Economic Research (NBER) recently conducted a study of managerial title usage in firms across the nation. The researchers uncovered evidence that some organizations have been taking advantage of provisions of the Fair Labor Standards Act to essentially skirt paying overtime wages. The companies have been misclassifying employees as "managers" or assigning them managerial titles so that these individuals will be exempt from getting overtime.

The team noted that misclassification was particularly prevalent in companies facing financial constraints. And while it might help organizations stay within their budgets, it adversely impacts employees. The practice resulted in approximately $4 billion in lost overtime wages per year.

Misclassifying Employees Is a Violation

The researchers review job descriptions posted nationwide over an eight-year period. According to their findings, many firms attempt to cut labor expenses by misclassifying employees and giving them incorrect job titles to inflate their wages without actually providing them with higher-level responsibilities.

Employers use the tactic to save money at the expense of workers. It is a common violation of labor regulations.

The Impact on Employees

When employers misclassify workers' titles, the employees take a substantial hit to their paychecks. According to the research, workers given managerial titles (even when not performing managerial duties) might earn an average of 13.5% less than those correctly classified as non-exempt.

Even though the employee's title designates them as exempt, without scrutiny of their actual duties, it's possible the employee is not truly exempt from receiving overtime wages. They should be entitled to pay for their extra hours worked.

Unfortunately for employees, the misclassification practice seems unchecked. It is hard to monitor because the worker must recognize that they have a title without the duties and bring the violation to light. One researcher told Law360, that workers might be unaware that the overtime exemption applies based on the tasks performed, not on the person's title.

To avoid misclassifying employees as exempt, firms should develop clear job descriptions for the position and review them regularly. Furthermore, they could have employees self-evaluate to identify whether their duties are actually managerial.

The Difficulty of Correcting and Enforcing Violations

If an employee realizes that they have been misclassified and are being cheated out of overtime pay, they can take action to try to correct the issue. However, they are limited in avenues for seeking a settlement.

Most employers have arbitration clauses stating that workers must resolve problems outside the courtroom and that they cannot pursue lawsuits against their employer. Because of this, workers are unable to file collective claims, making it difficult to prove violations. Additionally, attorneys might be hesitant to take on a case for an individual employee because of a lack of profitability.

Arbitration can be beneficial for an employee in terms of getting some remedy. Still, it won't necessarily lead to systematic change because its process remains confidential and employers have no incentive to fix their unlawful practices.

Speak with a Lawyer About Your Case

Wage and hour violations should not be tolerated. Workers should be paid fairly for the work they perform and the hours they perform it. Employers should be held accountable for skirting the laws and "justifying" paying employees less than they deserve.

If you have an employment law case in Chicago, contact Atlas Consumer Law by calling us at (312) 313-1613.