Our lead award a winning NY Employment Lawyer has provided advice and counsel to many small businesses who have received an audit notice, a letter requesting business/employment records and/or a subpoena regarding their employees and independent contractors. It is important to obtain experienced employment law counsel on this matter immediately before any adverse determination is made. The issue of misclassification of workers has been a priority in New York State in recent years. Indeed, NYS create a Joint Task Force on this issue. While small business owners may not initially understand the implications of misclassifying a worker or may simply make an innocent mistake, such an error can have serious consequences. It is always a prudent idea to seek counsel when you are bringing a new worker on board so you can properly determine whether the individual should be treated as an employee and issued a W-2 tax form or as an independent contractor and issued as 1099 tax form. Each situation is fact specific. One of the most common misconceptions is that event if a worker and business owner initially agree that their relationship shall be on an independent contractor basis, the Department of Labor can find an employee-employer relationship and thereby issue fines for unpaid payroll taxes, penalties, etc. Below are some examples provided by the State of its recent enforcement actions – contact our office at (800) 893-9645 for a confidential consultation if you have any questions about your employment practices or misclassification concerns.
FIRST EXAMPLE: A complaint received by the Department of Labor indicated that workers at a retail deli/grocery were being paid partially off the books, and were not being provided with breaks. During a site visit, eight employees were observed performing services. The employer had not reported eight employees during any quarter of the audit period. Additionally, the officer admitted that employees received free meals. The employer paid employees in cash which was not reflected in the books and records, so additional contributions due of $1,347.76 were estimated. A 50% fraud penalty was also assessed.
SECOND EXAMPLE: An anonymous complaint was received in the Unemployment Insurance Fraud Unit stating that an employer that provided custom printing on t-shirts was paying employees off the books. A survey of the business was conducted jointly by the Unemployment Insurance Division and the Division of Labor Standards. Ten employees were observed; the employer had only reported three to four employees per quarter. The employer admitted he paid wages in cash. No time records were kept, and no wage statements were given to employees. The employer refused to provide bank statements for review. As a result, additional contributions of $8,967.56 were estimated to be due. A 50% fraud penalty was also assessed.
THIRD EXAMPLE: A complaint received by the Division of Labor Standards indicated that dancers at an adult entertainment venue worked for cash tips only; that no time records were maintained or wage statements issued and; during a Workers’ Compensation case, the employer claimed that a dancer was an independent contractor. The Unemployment Insurance Employer Services representative found that the employer exercised direction and control over the dancers’ services and had indeed misclassified dancers as independent contractors. Records presented were inadequate to establish amounts paid to employees. It was also found that the employer required the dancers to tip the bartender and the doormen. Additional Unemployment Insurance contributions determined due totaled $25,439.43, and a 50% fraud penalty was also assessed.
FOURTH EXAMPLE: A complaint was received that an employer, with headquarters in Florida, was misclassifying individuals who were utilized as “brand ambassadors” – promoting various alcoholic products at local bars and restaurants in New York – as independent contractors. A review of Unemployment Insurance files showed that several unemployment Insurance claimants who were treated as independent contractors had been determined to be employees. These determinations advised the employer that amended returns needed to be submitted showing wages paid to all individuals similarly employed with appropriate contributions due. However, the employer had only submitted amended returns listing wages paid to the individual claimants. Fact finding conducted by the Office of Special Investigations provided additional support for the determination of employment, and showed that the employer owed $219,793.12 in additional contributions due.
FIFTH EXAMPLE: A referral was received from the New York State Attorney General’s Office. The employer in question was a construction contractor. The Attorney General’s Office conducted interviews with six workers, none of whom were wage reported. Based on the information contained in the interviews conducted, additional contributions of $2,328.04 were determined due with a 50% fraud penalty also in order. As a result of the assistance of the Office of Special Investigations, and the Attorney General’s Office, the employer agreed to pay the amount due in full.
Disclaimer: Thank you for visiting our Blog. This blog provides general information and thoughts about various employment law issues primarily in the New York Tri-State area and occasionally in other areas. You are welcome to read the posts. However, do not construe any content on this blog as legal advice or the creation of an attorney-client relationship. Again, we provide the content only for informational purposes. You should not make decisions based information on our blog since the application of the law depends on the facts and each situation may be different. In addition, the law in most jurisdictions is different and changes constantly and we make no representations that any information on our blog has been updated. The Blog should not be used as a substitute for competent legal advice from an experienced employment law attorney in your state or jurisdiction.