AZ contractor ordered to pay $48K in worker misclassification case

Dive Brief:

The U.S. Department of Labor has ruled that Arizona homebuilder DCO Custom Builders must pay $48,000 in back wages and penalties for misclassifying workers as independent contractors and not paying employees at overtime rates when required — in violation of the Fair Labor Standards Act, according to the Arizona Republic.
The DOL investigated DCO for two years and ordered the contractor to pay 31 employees $24,255 in unpaid overtime, additional penalty wages and restitution in the amount of $4,604.
Despite DCO's actions, a DOL spokesman said the company is now in compliance with fair labor standards, and DCO managing owner Daniel Osete said the company was unaware it was violating a law and has taken internal measures to make sure the same situation doesn't happen again.

Dive Insight:

Eric Murray, director of the DOL's Phoenix Wage and Hour Division office, said misclassifying workers as independent contractors "cheats" employees and taxpayers alike. Murray told the Arizona Republic, "As this outcome shows, we are committed to protecting the rights of construction workers and will use every tool available to hold employers accountable."

The misclassification of employees has emerged as a heightened area of prosecution, according to legal experts. A 2014 report by journalists at The McClatchy Co. uncovered rampant worker misclassification in the construction industry. The report found that employers often claimed that legitimate employees were independent contractors so they would not have to pay payroll taxes, unemployment or workers’ compensation for them.

A new DOL overtime rule is scheduled to go into effect Dec. 1 and will raise the salaried worker exempt threshold from $23,660 to $47,476 a year. Currently, salaried workers making at least $23,660 are exempt from overtime pay rules. However, once the rule goes into effect, a salaried worker must be paid at least $47,476 in order for an employer not to have to pay overtime. Proponents of the new rule say that it will result in employers paying a higher base wage in order to avoid having to pay overtime, but industry associations said the rule will have the opposite effect.

The National Association of Home Builders, Associated General Contractors of America and Associated Builders and Contractors all contend that employers will cut workers hours and return current, salaried workers back to hourly pay — which will seem like a demotion to those employees. NAHB Chairman and CEO Ed Brady called the move one of "sheer arrogance" and said the DOL should nix the rule. The ABC also pointed out that the new regulation doesn't take regional pay variations into account.