Many employers believe that if their employees agree to certain pay arrangements or agree to be classified as independent contractors, there is no law violation. This is not the case. Employees cannot agree to waive their rights under the Fair Labor Standards Act. For example, offering your employees time off or additional benefits in place of overtime pay is still an FLSA violation—even if your employees sign a written contract to that effect.
The FLSA and only the FLSA determine the employer’s FLSA obligations. Even when an employee willingly goes along with, or even requests, an illegal pay arrangement s/he can still sue the employer for FLSA violations and recover any back pay he is owed under the law, in addition to keeping the extra pay and benefits he already pocketed under the illegal compensation system, and additional amounts in liquidated damages. If that’s not enough you may also be on the hook for your employee’s legal fees!
Whether a worker is an independent contractor or an employee is one of the most misunderstood areas in employment law, leaving businesses very vulnerable to fines, penalties, and legal fees that can be staggering—particularly to smaller businesses. Businesses that try to escape paying payroll and other taxes in connection with their workers, or providing workers’ compensation coverage and other benefits do so at their peril.
Since this practice results in the loss of significant sums of money to both the federal and state governments, the US Department of Labor has entered into agreements with many of its state counterparts to crack down on businesses that misclassify workers.
