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Misclassification of Employees as Independent Contractors Update: Should you issue an IRS Tax Form 1099 or W2?

Our Contractor/Employee Misclassification Employment Lawyers have been closely following the New York State Department of Labor’s efforts to crackdown on misclassification of employees as independent contractors. Recently, New York enacted legislation entitled, “New York State Construction Industry Fair Play Act.” which states that a construction worker is presumed to be an employee and not an independent contractor unless very specific criteria are met. This law is not expected to be good news for companies who are not compliant with worker classifications; however, it should enable more workers collect employee benefits such as paid vacation, health insurance, contribution towards payroll taxes and reduce the burden on companies that are compliant. Misclassification can have serious consequences, often with complex intermingled issues, for companies that could be subject to multiple and simultaneous investigations from several departments within the New York State Department of Labor, the New York State Workers Compensation Board, the IRS and a class-action lawsuit by misclassified workers. Federal Express Ground and World Wrestling Entertainment (WWE) are two well known companies who have faced misclassification issues recently. Our New York Employee Misclassification Lawyers and Attorneys have represented many businesses and individuals regarding employee misclassification issues. Contact one of our New York Employment Lawyers at (800) 893-9645 to confidentially discuss your question or issue.

Under the Act, a construction worker will be considered an employee unless the worker is a separate business entity or the following three criteria are met: (1) the worker is free from control and direction in performing his or her duties; (2) the services performed are outside the usual course of the company’s business; and (3) the worker is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue. Only if all three criteria are present, the worker could be treated as an independent contractor. This is a high standard for most companies to meet.

Proper classification of workers as 1099 Independent Contractors can be a significant advantage to companies. Companies can take advantage of many benefits if they correctly classify workers as independent contractors. For example, companies do not have to pay employer portion of payroll taxes (i.e., FICA and FUTA), and offer employee benefits, which can be substantial, to independent contractors. However, although the use of consultants and independent contractors is on the rise, our experience has shown that many companies intentionally or negligently improperly misclassify workers. Many companies incorrectly have workers sign an independent contractor agreement, which is often poorly drafted and downloaded online from a free site, and then believe that they can treat the workers as independent contractors. This is a dangerous practice and not legally tenable. Proper classification requires careful legal analysis. It is best for a company to consider its worker classification practices before it is audited by the Department of Labor or IRS. Our Employment Law Attorneys have helped companies properly classify workers and helped employees collect benefits when they have been improperly misclassified.

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for top.lawyers.arrive.mag.2011.jpgIn addition to the potential of a class action lawsuit, the penalties against a non-compliant company are significant. Companies, including some shareholders, who willfully violate the New York State Construction Industry Fair Play Act may be subject to civil and criminal penalties. The Act expressly prohibits companies from retaliating against workers who complain about their misclassification status. Furthermore, employers are required to a posting a Notice in workplace specific to the Act. Contact our New York Employee Misclassification Attorneys to confidentially discuss your misclassification issues at (800) 893-9645.