During an investigation by the U.S. Department of Labor's Wage and Hour Division Greenstone Materials Inc. of San Juan Capistrano, California admitted that it was company policy to start all new hires as "1099" independent contractors during a probationary period of up to three months, and that after that time employees could opt to continue working as independent contractors or be considered employees. This misclassification of employees as independent contractors led to wage violations when the employer paid straight time rates for overtime hours, and also failed to pay overtime at the correct rate after failing to include bonuses paid to workers in the employee's regular rates of pay when computing "time and a half," as required by the Fair Labor Standards Act. Additionally, the employer failed to maintain complete and accurate time and pay records, and failed to display required postings.

Greenstone Materials has agreed to pay $74,504 in back wages and an additional $74,504 in liquidated damages to 40 workers. The employer has agreed to comply with the FLSA and has taken additional steps to ensure compliance. These include: 

• An employee handbook has been created and distributed to all employees with information on company policies, the FLSA and California state labor laws.
• The employer has hired a new payroll service provider, who will handle all employee payments.
• All workers are now properly classified as employees and not as independent contractors.

Under the FLSA, employers must distinguish employees from bona fide independent contractors. An employee — as distinguished from a person who is engaged in a business of his or her own — is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business that he or she serves.