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New York State Department of Labor Audit Notice & First Steps – Misclassification of Independent Contractors

Audit.Rip.Through.Newspaper.Dollar.Photo.Club.9.11.15.jpgIn recent years, the New York State Department of Labor has increased enforcement steps to ensure compliance with wage and hour laws. One of the specific areas of increased review is the DOL’s audit of small businesses with regard to classification of employees and independent contractors and use of freelancers. Misclassification of workers has become a prime target because the State has stated that payroll taxes are evaded and possible employee benefits are denied when violations are found. A misclassification issue often impacts a class of workers – not just one or two and as a result, an error can have significant consequences resulting in a monetary penalty and impact the viability of your business model and profit margins. In general, the audit process starts with a written notice similar to the text of the notice below. Some audits are randomly initiated while others can be the commenced on the basis of an employee (usually a former worker) complaint. It is critical for small business owners to take this notice seriously. Too often business owners ignore the notice instead of reviewing its employee pay practices immediately. Some errors can be corrected quickly while others will require close analysis and strategic considerations. A discussion of the factors considered in a misclassification case was the subject of a prior blog post by our Firm and can be found here. In all cases, you should consult your employment lawyer with regard to your pay practices. All businesses should cooperate during the audit process. Failure to cooperate can impact the state investigator’s perception and approach to addressing any potential violations. Further, the investigator has some discretion during the investigation – an uncooperative company should not expect any courtesy or the benefit of the doubt in certain cases. The audit process can take weeks or months depending on the circumstances and will include a site (sometimes unannounced) visit to your business.

Best.Practice.Light.Bulb.DOL.Audit.Dollar.Photo.1.18.16.jpgIf you have received an notice of audit and want to know if you are in compliance, what your potential exposure is and what are the best practices under the circumstances, contact our experienced and award winning New York Employment Lawyer for a confidential consultation at (800) 893-9645. We have represented many New York State business across multiple sectors (e.g. entertainment, production, IT, photographers, legal, finance, service-related providers, etc.) and saved them money and time.

LANGUAGE FROM A SAMPLE NOTICE OF AUDIT

Your account has been selected for an audit. We conduct audits of employers to ensure compliance with Section 575 of the Unemployment Insurance (UI) Law, and protect the integrity of the Unemployment Insurance Trust Fund.

For questions about the date, time or location of the audit, call us immediately.

An Unemployment Insurance Employer Services Auditor will visit your place of business and meet with you to discuss the purposes of the audit. The auditor will give you a general overview of the audit process and examine the following books and records for the preceding three years:

General Ledger, supporting ledgers and journals
Payroll records such as individual earnings records, payroll journals, payroll books, and summaries.

Disbursement records such as the check register, cancelled checks, bank statements, check stubs, cash book, disbursements journal, petty cash journal, or any other record that shows payment made by cash or check.

Founding documents such as corporate minute book, certificate of incorporation (if applicable), partnership agreement (if applicable), DBA certificate, etc.

Records relating to the value of other renumeration such as meals, tips lodging, automobiles, etc.

Federal Income Tax Returns.

Copies of Federal and State payroll returns such as forms 940’s, 941’s, NYS-45’s, W-2’s and W-3’s.

Records pertaining to services by individuals such as forms 1099’s and 1099’s, contractor agreements, invoices, and certificate of insurance.

Current Workers Compensation Insurance Policy.

UI Poster that show a registration with NYS DOL for UI.

Sales Records such as a sales journal and sales tax returns.

In general, this language is from a sample notice. Each case is different and the terms of your notice and audit may be different. As you can see from the terms of the sample notice, the amount of material sought is extensive. You should consult an experienced employment lawyer for advice and counsel on your specific case.

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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 attorney in your state or jurisdiction.