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Misclassifying Independent Contractors in New York

It is not uncommon for employers to misclassify employees as independent contractors. Employers do not have to provide independent contractors with workers’ compensation benefits, unemployment benefits, payment of FICA taxes or payment for overtime.  Employers must answer to the Internal Revenue Service (IRS) and the U.S. Department of Labor as well as state Departments of Labor if they misclassify an employee as an independent contractor. The employer would then owe the IRS and the DOL penalties and taxes. The employer might also owe the employee benefits he should have been given or overtime wages which were never paid.

On September 19, 2011 the U.S. Labor Secretary along with the IRS commissioner signed a memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and education.  The New York Attorney General also signed the memorandum along with agency leaders from ten other states.  The goal is to protect individuals who are working as independent contractors when they are actually employees entitled to greater benefits than independent contractors.

Some of the factors to be considered according to the memorandum of understanding are:

Degree of Control—an independent contractor has control over the specifics of how his work will be performed and manages what supplies or equipment are needed to perform the work

Hours and Permanency of Work—an independent contractor will not rely on only company for his business. If an individual works without a per-project schedule or an end date, it may be lead to a finding that the individual is working full-time on a permanent basis for an employer as an employee.

Training, Supervision and Reviews—an individual who is trained by a company or receives and reviews and direct supervision from a company may be seen as an employee rather than an independent contractor.

Payment and Opportunity for Profit or Loss—if an individual is paid a set wage or salary and assumes no risk of loss and no chance for profit, the individual may be seen as an employee rather than an independent contractor.

Benefits—an independent contractor would not be entitled to sick leave, vacation time, or health insurance through a company. An individual receiving such benefits would be seen as an employee.

Get Legal Help

Understanding your rights as an independent contractor or an employee has significant impact on your need for insurance, protection of personal assets, and your estate plan.  Experienced Estate Planning Attorney Elga Goodman also has experience in business law and she can help you create a plan to protect your business, your assets, and your loved ones. Contact us today at 973-841-5111.


Posted in: New York Estate Planning