Proper wage classifications are crucial

The Internal Revenue Service is cracking down on wage and hour compliance for 2010. Watch for increased investigations and fines.

It seems that each year, the IRS has an issue to pursue that is near and dear to its heart. This year is no exception, with the laser-like focus on wage and hour compliance. Businesses need to be alert for this issue and also be aware that the IRS and the Department of Labor are just two avenues of enforcement that may be in place this year. Others may include state or local tax agencies interested in enforcing the rules and regulations in the area.

The biggest problems generally relate to things such as proper classification, differences between federal and state regulations and not applying wage and hour rules properly. “There are two big classification errors that generally occur,” said Ty Gomez, a Dallas employment lawyer and business lawyer. “The first one is usually the independent contractor versus employee mistake. Internal Revenue has rigid laws about who is legitimately classified as an independent contractor. If you have wrongly classified a worker, you could face crushing penalties and intense scrutiny.”

On the other side of the coin is the exempt versus non-exempt status classification. First of all, the worker needs to be an employee. Next is the determination of whether or not he or she is an exempt worker. “This means a person exempt from minimum wage and overtime regulations and other wage and hour requirements. To be exempt, the worker must meet the Fair Labor Standards Act (FLSA) requirements. If you don’t get this one right, once again, there are stiff penalties,” Gomez said.

“Not every state has the same standards as those in the FLSA, so it’s best to consult with an experienced Dallas business lawyer to find out what you need to know. For example, in just about every situation where a federal and a state law differ, the employer makes an attempt to follow the rule most beneficial to the employee,” Gomez said. If the federal minimum wage is $6.75 per hour and in Florida the current state minimum wage is $7.75, companies must say the minimum wage is $7.75 because it is better for the workers.

What this ultimately means is that people need to know what the state’s specific wage and hour regulations are and how to apply them. “For instance, in Texas, the minimum wage law doesn’t have dollar minimums. The State adopts the Federal minimum wage rate by reference,” Gomez said.

The last major category that employers tend to get wrong is improperly applying wage and hour rules. There are so many regulations that can be misapplied, it would be impossible to cover them all. There are more than enough to confuse any businessperson who isn’t familiar with them. For instance, errors tend to happen with final pay, improper deductions from paychecks, overtime, minimum wage, reporting time pay, call back pay, meals and rest periods, on-call time or standby time and training and travel time.

“As you can see, this is not an easy area to keep up-to-date on and it’s best to consult with a Dallas business lawyer who deals with material like this every day. If you get on the wrong side of the rules and regulations, you’ll have a lot of grief getting it sorted out,” Gomez said.

Gomez Law Group is a Dallas employment lawyer and Dallas business lawyer. To learn more, visit