Every New York Business is subject to an audit by the Department of Labor. Whether an audit was commenced due to a complaint, randomly or otherwise, it is critical for businesses to be prepared for the DOL investigator’s visit. While you cannot control entirely whether your business is selected, you can control your exposure and response by taking proactive steps. This blog post will generally discuss what to do if you receive a NY DOL Audit Notice. For specific advice on your situation and your potential exposure, if any, contact our office for a confidential consultation.
If you have received a notice, it is of paramount importance that you appropriately respond to it. Failure to respond can lead to a subpoena and other actions as the DOL will perceive you as being uncooperative and obstructive. This can lead to unfavorable results.
The agency is seeking to determine if you are in compliance with your legal obligations as an employer. If you are not in compliance, you may be issued penalties, fines and back wages – this can depend on the type of audit. An audit can be triggered by the federal government (US DOL) or the state (NY State Dept of Labor). The state agency has multiple divisions responsible for investigations – the Unemployment Insurance (UI) and the Labor Standards. The UI tax division may focus on whether your business properly reported employee wages and paid the appropriate payroll taxes. The Labor Standards Division may focus on whether you paid your employees the appropriate minimum wages and overtime pay. This blog post will generally discuss an audit from the UI tax division.
Business owners should note any deadlines contained in the audit notice to ensure they are prompt in responding. Second, owners should contact an experienced New York Employment Law Attorney to discuss their current record keeping and employment law practices. An audit is a legal process with serious consequences. It is important to understand if your business is currently in compliance or it faces exposure from the audit and/or potential lawsuits by employees. One of the audit’s focal points may be your use of contractors and whether you properly classified your workforce. Contrary to common belief, just because a worker and business owner decide there is an independent contractor relationship, that is not controlling. In fact, the courts and agency will not just take the parties’ word; rather, they will focus on the details of the actual working relationship between the parties. This analysis can negate the parties’ intent of a contractor relationship. The distinction between an employee and a contractor is important and a misclassification can lead to substantial adverse results. A misclassification finding does not require any bad intent on a company’s part so getting good legal counsel from the start is imperative.
What Are Some of The Factors That Will Support a Finding of Employee/Employer Relationship?
There is no one single factor to definitely show that a worker was an employee and not a contractor. The analysis is like putting the pieces together in a puzzle. The main pieces in a puzzle that support a finding that a worker is an employee are:
1. If the worker is directed or controlled by your business;
2. If the worker is required to work in the company’s office;
3. If the worker’s schedule and pay are set by the company;
4. If the worker uses the company’s equipment, tool and is provided a company email address;
5. If the worker is required to provide regular status reports; and 6. If the worker performs services that are integral to the company’s business model.
If a worker is found to be an employee, not only could back payroll taxes be owed, the worker could be entitled to overtime pay, employee benefits (which can be significant in certain workplaces – Microsoft found this out in a very expensive way many years ago) and tax adjustments. These findings can have a serious impact on your business model currently and going forward. We have discussed classification issues in prior blog posts
The best way to fight an audit is to take proactive action to ensure you have implemented the correct classification analysis to start with. Obviously, that is not always possible. In those cases, it is important to seek counsel immediately and understand how a misclassification analysis fits within your business. These cases are fact specific and depend on the circumstances. The analysis depends on your business model and the role of the workers. Not everyone’s case is the same. You should start gathering evidence showing which factors support your classification determination.
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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. From time to time, a blog post may discuss a legal case – please note that the post may not contain the most to update information on the case as developments may have occurred after it was created.