In one of his first Executive Orders, Governor Andrew M. Coumo re-authorized the Joint Enforcement Task Force on Employee Misclassification. The Task Force is carefully analyzing business practices where an employee is incorrectly identified as a independent contractor or when the worker’s wages are not reported by the business (i.e., the worker is paid off the books). The State has been conducting enforcement sweeps, audits and investigations of businesses. The State believes it is a serious problem because it loses tax revenues (i.e., unpaid employee payroll taxes), harms legitimate business activity and takes away rights from workers. In just one year, the State found approximately 20,000 instances of employee misclassification, approximately $400 million in unreported wages and assessed business over $14 million in unemployment insurance taxes. During the same time, the State conducted over 2,000 fraud investigations and found over $300 million dollars in unreported wages. This is a serious issue and the monetary damages can far outwiegh any short-term benefits that a company may perceive receiving by engaging in such conduct. A business can be exposed to significant liability if it does not seek and obtain legal and tax counsel in how it decides to classify its workforce. If you have any questions about your responsibilties as a employer, it is critical you speak with an experienced employment lawyer before the Department of Labor commences an investigation or a worker files a lawsuit especially in light of new legislation. Call now at (800) 893-9645 to confidentially speak with one of skilled employment attorneys.
In general, businesses with employees (even if it is just one employee) are subject to minimum wage and overtime laws and they must register with the State as an employer. They must also pay unemployment and social security taxes, withholding taxes, and must maintain workers’ compensation insurance (unless there is an exemption). There are two main instances when misclassification can occur.
This is the most common instance – a worker who performs duties similar to what an employee would do yet the company calls the individual an independent contractor perhaps to save on the payroll taxes and to avoid providing employee benefits. Courts in NYS review the totality of the circumstances of the working relationship to determine if the worker was an employee or not. Although no one factor is dispositive, some of the main issues include the following:
1. How, when and where is the individual working. Does the business control and supervise the work?
2. Is the worker providing the same type of services as the business? For example, if the Company provides security services and the worker is a security guard, there may be a presumption that the worker is an employee. However, if the worker is a computer specialist who does not do any security work, this factor would support an independent contractor relationship.
3. Does the worker have his or her own business and advertise to the public? Generally, a LinkedIn account is not sufficient.
This analysis is very fact specific and may even depend on the agency conducting the investigation as each agency as its own criteria. The penalties can be substantial. Some investigations can go back over 3 years.
If a business pays a worker off the books and does not deduct any monies for payroll taxes, misclassification may have occured. Even if a worker agrees to this scenario (and many times that does happen), it can cause serious problems for an employer with the IRS, NYS DOL and other agencies.
There are other methods that misclassification can occur as well. Call our to office to learn more about misclassification issues at (800) 893-9645.