Take care when classifying your workers to avoid costly audits

Job duties, not job titles, determine pay classification and workers’ compensation codes. Not making the correct choice can cause problems, or even prompt a workers’ comp or federal wage audit

When hiring a new employee, it is important to review the individual’s primary job responsibilities before determining whether they will be paid on an hourly or salaried basis.  It is also critical to determine a correct job code when reporting the new employee to your workers’ compensation carrier.

Although employers may have business reasons for making decisions, without professional guidance, employers can get caught on the wrong side of a Department of Labor wage and hour audit or a workers’ compensation audit.

Here are some key areas to consider:

Salary/exempt employees:  Many employers pay all office or supervisory employees on a salaried basis.  For most employers, that means no docking for missed time and no overtime pay.  This is a common violation with the U.S. Department of Labor and without timekeeping documentation, employers often lose during an audit.  Additionally, employees should not be paid on a salaried/exempt basis unless they make at least $455 per week and the employee’s primary duties include “the exercise of discretion and independent judgment with respect to matters of significance.”  Other factors may also apply to this decision about exempting an employee

Workers’ compensation class codes:  Insurance carriers often conduct workers’ compensation audits to determine whether employees are in the correct class code. Misclassification discovered during an audit can result in unexpected, additional insurance premiums. This can add up to thousands of dollars you were not expecting to pay.

1099 contract employees:  This is another area where employers should be sure they understand regulated guidelines.  Contract employees set their own hours, determine the amount they will be paid, determine how the work will be done, pay their own taxes and carry workers’ compensation insurance on themselves.  If you are issuing 1099s to individuals, yet directing their work, you may want to review this situation with one of our HR professionals.

Remember to take the proper steps to classify your employees correctly when they begin employment or change positions.  Let BCN help you before you get audited. Our HR staff is available to discuss any concerns you have in these areas, either regarding existing staff, or in determining direction before you make your next hiring decision.

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Sue Kester, HR Manager