Are You a Wage Thief?

AN INTRODUCTION TO MINNESOTA’S WAGE THEFT PREVENTION ACT

Minnesota passed the Wage Theft Prevention Act (WTPA) in 2019, a series of modifications to existing statutes providing additional protection for workers whose employers do not pay what is owed for work performed.

Wage theft occurs when an employer, with an intent to commit fraud, pays an employee less than has been earned. The employer may require an employee to falsify the hours worked, require an employee to return any portion of their earnings, create a record showing the employee was paid more than was actually paid, or misclassify an employee as an independent contractor.

The Federal Fair Labor Standards Act (FLSA) classifies employees as “Exempt” or “Non-exempt.” Exempt employees are typically management, supervisors, or make financial decisions that impact the health of the business. The exempt employee is often paid a salary, no overtime, and does not make a record of hours worked. A word of caution: many office and field personnel are paid a salary but do not qualify as exempt employees.

Most employees are non-exempt under the FLSA, meaning they must be paid hourly at a rate no less than minimum wage and must be paid overtime at a rate of no less than 1½ times their hourly rate for all hours worked over 40 hours in each seven-day work week. Failure to track hours and pay a non-exempt employee for the hours worked, including overtime, may constitute wage theft.

The FLSA does not allow “banking” of hours. Banking occurs when a nonexempt employee is paid for 40 hours during a seven-day period when the employee worked more than 40 hours. The ‘extra’ hours are banked for a slower week when the employee works less than 40 hours but still receives a 40-hour paycheck. Employers believe banking is okay to “save” the overtime hours for a time when the employee works less than 40 hours, and because many office personnel prefer a salary to punching a clock.

Intentionally misclassifying employees (W2) as independent contractors (1099) may also constitute wage theft. Engaging independent contractors is a common business practice for contractors that

allows for scaling of working forces as projects come and go. Examples include trade subcontractors, sales representatives, and professional service providers. Several “tests” are used to determine independent contractor status, most of which boil down to whether the employer retains the right to control the means and manner of the performance of the work, and whether the worker operates as a business.

The WTPA increases the penalties for misclassifying employees, so readers should consult their legal advisor to verify the classification of all workers. The WTPA imposes new recordkeeping requirements on Minnesota employers. When they start work, new employees must receive an employment notice with nine pieces of information and a copy of the company’s employment policies. If any of the information changes, they must receive written notice. Employers must retain a signed copy of the notice, policies, and time records for at least three years.

The WTPA gives the Minnesota Department of Labor and Industry (DLI) and the Minnesota Attorney General (AG) greater enforcement authority. DLI has more power to enter your business and inspect employment records. DLI can subpoena records, collect evidence, and interview witnesses, including private interviews with non-management personnel. The AG can also enforce these employment laws.

COVID-19 has kept DLI busy for the past nearly two years pushing enforcement of the WTPA to the back burner. That’s given Minnesota contractors extra time to get to know the WTPA and make changes to ensure compliance. As we learn to live with COVID and return to business as usual, DLI can be expected to step up WTPA enforcement. The penalties for violating the law include large fines and jail time. Contractors should get familiar with the WTPA and use this time to make necessary changes to business practices.

Contractors should consult their legal advisor to learn about the WTPA.

WRITTEN BY BILL GSCHWIND

MINNESOTA CONSTRUCTION LAW SERVICES, PLLC Bill Gschwind is an attorney and founding partner of Minnesota Construction Law Services, PLLC. He’s been a member of Housing First Minnesota for more than nine years, serves on the Advocacy Committee, and chairs the Regulatory Affairs Committee. He received the 2017 Housing Advocate of the Year award and the 2020 Housing Industry Leader of the Year award. He is a frequent speaker at Housing First Minnesota events and presents several continuing education courses through Contractor University.

Current online/on-demand courses taught by Bill and offered by Contractor University include Minnesota’s New Wage Theft Law, Winning with Mechanics’ Liens, and Winning Construction Contract Terms to Stay Out of Court and Invisible to the MN Department of Labor & Industry.

Find more details at ContractorU.com.