Wait, before you check that box in the picture to the left, are you confident that all of your workers are properly classified as independent contractors or employees? This is an area where proactive steps are crucial for all businesses to ensure that best practices are being followed before any governmental audit or lawsuit is commenced. Litigation by former employees and government audits and investigations are on the rise. Indeed, the New York State Department of Labor (DOL) and related states agencies conducted over 12,000 audits and investigations in 2014 and found over 133,000 workers were misclassified and there were $316 million dollars in unreported wages. Misclassification audits generally focus on cases where businesses improperly label an employee as an independent contractor, pay a worker off the books and otherwise misrepresent payroll. Many people incorrectly believe that this issue only affects manual labor workers who receive cash payments – that incorrect belief can lead to costly and time consuming errors. Below are the list of jobs with highest risk of misclassification cases according to New York State’s Joint Enforcement Task Force.
Professional, Technical and Scientific Services Construction of Buildings Food Services and Drinking Places Publishing Industries (except internet)
Administrative and Support Services Specialty Trade Contractors Ambulatory Health Care Services Personal and Laundry Services Performing Arts, Spectator Sports, and Related Industries Educational Services Motion Picture and Sound Recording Industries
Merchant Wholesalers and Nondurable Goods
Misclassifying workers may sound like an innocuous issue but its effects ripple throughout our economy. Businesses may try to label workers as independent contractors (i) to avoid paying payroll taxes; (ii) to decrease their costs in order to gain an unfair advantages over compliant businesses; and (iii) to deprive workers protection under certain employment laws and job safety standards. As a continuation of point three, some business owners mistakenly believe that workers will be deprived of unemployment insurance benefits and workers compensation benefits as well and they will save money from contributing to those benefits. However, a filing a claim for benefits is one of the trigger for a government audit or investigation can be commenced and, depending on the circumstances, misclassified workers can be eligible for benefits.
First Example: New York State received a tip that a restaurant in Brooklyn was paying its workers off the books, not paying the correct rate for overtime work, and not giving its workers a day off. The State found that the restaurant (i) never registered for unemployment insurance purposes; (ii) had incomplete records; and (iii) did not maintain a bank account. All three are troubling issues for an employer – it is not credible that a restaurant has zero employees and never registered as an employer. Second, record keeping is not only required by the New York Labor Law, it can also be helpful for an employer’s defense. Finally, not having a bank account for an established restaurant is also not credible. During the investigation, the restaurant stated it had 8 employees who were paid in cash. As a result of the DOL’s audit, the business was found to owe $39,000 in unemployment insurance contributions and was assessed a 50% fraud penalty for failing to maintain records of its payroll. The restaurant could be subject to a lawsuit by its workers as well if it did not pay minimum wage and overtime pay as well.
Second Example: An employer allegedly was misclassifying customer service workers as independent contractors, and not paying the correct overtime rate. The business operated in the marketing and entertainment industry and was found to have misclassified over 20 workers as independent contractors and approximately $8,500 in contributions to New York State were owed. Companies in the entertainment industry have been the focus of many investigations recently. In fact, we have represented clients with actors, editors, photographers, music composers, sound mixers – all of which were the subject of a misclassification inquiry. It goes to further show that this issue cuts across all industries.
If you have been contacted by New York State regarding a misclassification or other government investigation regarding your workforce, contact our Award-Winning New York Employment Lawyer at (800) 893-9645 to learn your rights.