Potential problems with piece work
by Stephanie Meyerson Warshal
To help keep up with workloads and seasonal demands, residential roofing contractors often contract work with "independent contractors." These independent contractors frequently are paid on piece-rate bases (i.e., a set price per roofing square completed) rather than hourly wages.
But from time to
time, a residential
roofing contractor
is challenged by
individuals claiming entitlement to
minimum wage or
overtime wages or
the U.S. Department of Labor
(DOL) claiming that an independent contractor should be treated as the roofing
contractor's employee (e.g., receive overtime pay if piece work exceeds 40 hours a week).
If a subcontractor or his employees are found to be employees of a roofing contractor according to the Fair Labor Standards Act (FLSA), the roofing contractor is liable to those individuals for overtime wages for work performed whether the work is performed on an hourly or piece-rate basis.
Note: For purposes of this article, the term "subcontractor" refers to any individual with whom a roofing contractor enters into a contract to perform roofing work.
FLSA
FLSA sets minimum wage and hour provisions and states that an employer is required to pay employees minimum wage, currently $5.15 per hour, and time and a half their regular pay rates for each hour, or fraction of an hour, worked over 40 hours during any workweek.
A lawsuit for FLSA violations may be brought against a contractor by
either DOL or an individual who has been denied wages to which is he entitled. Typically, DOL and individuals have two years to bring a lawsuit against an employer for an FLSA violation of overtime provisions. However, if a contractor either knows or has reckless disregard for the fact that he violated FLSA, a violation may be declared willful and an individual will have three years to bring
a lawsuit.
An employee who is successful in
a lawsuit for unpaid overtime usually will be entitled to any back wages owed for the period before the filing of the lawsuit. In addition, the employee will be entitled to recover
liquidated damages (i.e., money in addition to back wages—up to twice the amount of back wages can be
recovered); reasonable attorneys' fees; and the lawsuit's costs.
There are two ways a roofing contractor can protect himself from liability in these situations. First, any
intended independent-contractor relationship should be examined carefully to ensure the requirements to attain independent-contractor status are met. Second, for individuals who qualify as employees under FLSA, a roofing contractor should ensure the employees are paid all wages that have been earned, including overtime pay, and that proper work records are kept.
Determining status
The following are three primary ways in which a subcontractor or his employees may be considered employees of a roofing contractor for FLSA purposes: 1. The subcontractor does not meet the test for independent-contractor status; 2. The subcontractor and roofing contractor are joint employers of the subcontractor's workers; or 3. The subcontractor and roofing contractor are found to be a single enterprise employing the subcontractor's workers.
The FLSA test for determining whether an employment relationship exists focuses on the concept of economic dependence. Factors that are considered in determining whether a subcontractor is an independent contractor or employee include the following:
- The extent to which the work performed is an integral part of a roofing contractor's business. If a roofing contractor has his employees performing the same work as a subcontractor on the same job, an employment relationship is more probable.
However, if a roofing contractor who performs low-slope commercial work pays a subcontractor to perform steep-slope residential roofing work, the subcontractor would not likely be performing work integral
to the roofing contractor's business.
- The permanency of the relationship between a subcontractor and roofing contractor. If a subcontractor works exclusively for one roofing contractor or works for a roofing contractor
for an extended time period, the chances become greater that the subcontractor will be found to be an employee of the roofing contractor. But if a subcontractor regularly works for three or four roofing contractors, he is less likely to be found to be an employee of any of them.
- The degree of skill required for the services rendered. If a subcontractor provides a specialized work force skilled in roofing work as opposed to untrained laborers, he is more likely to be considered an independent contractor.
- A subcontractor's investment in equipment or materials for the task. If a subcontractor provides his own tools and equipment, he is more likely to be considered an independent contractor because the subcontractor is not relying on the roofing contractor to supply materials.
- A subcontractor's opportunity for profit or loss, depending on his skill. The fact that a subcontractor is paid on a piece-rate basis rather than for hours worked may help demonstrate that he has a greater ability to profit based upon his ability to quickly complete the work. Because he has a greater ability to control his work, he most likely would be considered an independent contractor.
- The degree of a roofing contractor's control over the work performed. The less involvement and supervision a roofing contractor has over a subcontractor's work, the less chance the subcontractor would be considered an employee of the roofing contractor.
Roofing contractors should note that none of these factors alone determines whether an independent-contractor relationship exists. For example, one or more of the previously mentioned factors may be present, and an independent-contractor relationship will continue to exist.
However, certain factors do not
determine whether an independent-contractor or employment relationship exists. For example, the fact that a subcontractor is or is not licensed is irrelevant to his independent-contractor status. Also, an individual does not become an independent contractor simply by signing a contract stating he is an independent contractor.
Employee relationships
If a subcontractor is not deemed an independent contractor, he and a roofing contractor may be considered joint employers of the subcontractor's workers. If a joint-employment relationship exists, the roofing contractor and subcontractor will be responsible for complying with FLSA with respect to paying the subcontractor's workers (i.e., paying minimum wage and overtime pay).
The factors generally considered in the test for joint-employer status include the following:
- The amount of control a roofing contractor has over workers.
- The extent to which a roofing contractor supervises the work.
To avoid being a joint employer,
a roofing contractor should not supervise or have any contact
with a subcontractor's workers.
- A roofing contractor's right to hire and fire workers or modify workers' employment conditions. A contractor who recommends certain individuals be hired or fired by a subcontractor could
be considered a joint employer.
- A roofing contractor's power to determine workers' pay rates or methods of payment. A roofing contractor who dictates hourly pay rates for a subcontractor's employees may be a joint employer.
- A roofing contractor's preparation of payroll and payment of wages. If a roofing contractor pays for a subcontractor's payroll even once, he could be deemed a joint employer.
- Performance by the subcontractor's workers of a job integral to
a roofing contractor's business.
- A roofing contractor's and subcontractor's relative investments in equipment and materials.
According to FLSA, a roofing contractor and subcontractor also can be considered to be a single enterprise and liable for overtime pay if the parties engage in related activities, are a unified operation or under common control, and share a common business purpose.
For example, a roofing contractor and subcontractor may be a single enterprise if the companies share a principal office or place of business; one person maintains both companies' business records; members of one family own and control both companies; and/or the roofing contractor provides services to the subcontractor, such as payroll, marketing and employee supervision.
If a joint-employment or single-enterprise situation exists, a roofing contractor may be liable for FLSA
violations committed by a subcontractor. Therefore, in a joint-employment or single-enterprise situation, a roofing contractor should ensure all the subcontractor's workers are paid properly (e.g., the amount of overtime pay is correct). A roofing contractor might require from the subcontractor proof of compliance with FLSA and indemnification against any actions brought by the subcontractor's workers for FLSA
violations.
Overtime pay
Once the determination has been made that an individual is a roofing contractor's employee for FLSA purposes, the roofing contractor is required to pay the individual any overtime pay to which he is entitled.
Many roofing contractors mistakenly believe they can avoid paying overtime to employees by paying them on a piece-rate basis. Regardless of whether an employee is paid hourly or on a piece-rate basis, he is entitled to overtime pay for hours worked over 40 hours a week. Furthermore, an employee cannot contractually agree to waive his right to overtime pay.
To compute overtime pay for a piece-rate employee, the first step is to determine the employee's hourly rate. For example, imagine two employees working for the same roofing company are paid $24 per square. One employee completes 4 squares in an eight-hour day, the other employee completes 6 squares. The hourly rate for the employee who completed 4 squares will be $12 (24 multiplied by four and divided by eight), and the hourly rate for the employee who completed 6 squares will be $18 (24 multiplied by six and divided by eight).
What if a new employee who is in training completes only 1½ squares per day? That employee's hourly rate would be $4.50, which is lower than minimum wage. This wage would violate FLSA, and the roofing contractor would have to pay this employee at least $5.15 per hour until he is
averaging at least that amount on a piece-rate basis. Similarly, if a roofing contractor guarantees a piece-rate employee a minimum hourly pay rate, he must ensure the employee receives at least that guaranteed rate per hour, and overtime pay is based on a rate no less than that guaranteed minimum.
The hourly rate for a piece-rate employee who has worked more than 40 hours in a week is computed in the same manner. The number of squares completed by the employee in a day is multiplied by the rate of pay per square, and that number is divided by the number of hours worked. Take the example of an
employee who completes 20 squares during a 50-hour week at a piece rate of $25 per square. The employee's hourly rate would be $500 divided
by 50 hours, or $10 per hour.
Once an hourly rate has been
determined for a piece-rate employee who has worked more than 40 hours in a given week, overtime pay can be computed. To do so, the number of hours worked exceeding 40 hours per week is multiplied by half the hourly rate. He would receive overtime pay for 10 hours worked at $5 an hour,
or $50. His total wages for the week would be $550. The overtime pay in this example is computed as follows: 20 squares multiplied by $25 per square equals $500; 10 hours overtime multiplied by $5 equals $50; and $500 plus $50 equals $550.
One of the most common mistakes roofing contractors make with respect to piece-rate employees is
failing to keep track of those employees' hours as required by FLSA. For piece-rate employees, FLSA requires that roofing contractors record each employee's daily hours, pay rate and amount of work completed.
If a lawsuit for overtime pay is filed and a roofing contractor failed to record an employee's hours, a court usually will believe the employee's account of his hours worked. Therefore, the importance of maintaining such records cannot be understated.
Simple steps
Unfortunately, there is no simple test for determining whether a subcontractor and his employees who are paid on piece-rate bases are independent contractors or employees entitled to overtime pay. There are, however, steps a roofing contractor can take to make sure he complies with FLSA. A contractor should:
- Review all subcontractor arrangements to ensure he is not responsible as an employer, joint employer or single enterprise for paying overtime to a subcontractor and his workers.
- Keep records for every employee, regardless of the manner in which they are paid, including hours worked, pay rates and amount of work completed.
- Pay overtime wages to every employee who is entitled to receive overtime.
By following these steps, a roofing contractor can continue his piece-rate pay arrangements and avoid
potential FLSA lawsuits.
Stephanie Meyerson Warshal is an
attorney with the law firm Hendrick, Phillips, Schemm & Salzman, Atlanta, Ga.
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