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NY Department of Labor Notice of Audit — Freelancers, Independent Contractors and Off the Books Workers

Audit.Rip.Through.Newspaper.Dollar.Photo.Club.9.11.15.jpgOur Award Winning New York Labor Department Attorney provides advice and counsel to businesses to implement best practices and compliance regarding employment law issues. It is critical to become compliant before a lawsuit or audit is commenced against you. In recent years, the United States and New York Department of Labor have increased their efforts in targeting in how businesses use independent contractors. In fact, the federal government and state governments work together on these issues now. It is tempting for businesses simply to call workers independent contractors so they can avoid paying payroll taxes and providing the workers with benefits and protections afforded to employees. While that be tempting, businesses must do a careful analysis of the worker’s responsibilities and role to determine if the worker is truly an employee or independent contractor. As we have discussed before, a mistake can be costly as it can result in penalties, fines, a bill for unpaid payroll taxes, governmental audits (not just by the Department of Labor), a lawsuit (potentially a class action) and more. Proactive steps are crucial in these situations. If you have any questions about implementing best practices to protect your business or have received a Notice of Audit from the Department of Labor, contact our office at (800) 893-9645 for a confidential consultation to learn your rights, options and next steps.

Independent Contractor versus Employee

The test for determining the proper worker classification can vary depending on the government agency and forum. This blog post will generally discuss the common law test articulated by the New York Court of Appeals regarding the New York Labor Law. Some of the factors considered include:

(1) “[w]hether the worker … worked at his/her own convenience.” If the worker works at his/her convenience, that is more indicative of an independent contractor because an employee typically works a scheduled fixed by the employer;

(2) “[w]hether the worker … was free to engage in other employment.” Independent Contractors typically work for more than one company at a time and hold themselves open for business to the general public. In general, employees typically work for one full-time employer;

(3) “[w]hether the worker … received fringe benefits.” An employee typically receives benefits such as paid time off while a contractor does not;

(4) “[w]hether the worker … was on the employer’s payroll.” This is an easy one – workers on payroll are being treated like employees.; and
(5) “[w]hether the worker … was on a fixed schedule.” In general, a contractor sets his/her own schedule while an employee works a schedule set by the company.

These are just some of the factors to be considered. Others may include whether the company provides equipment to the worker, and how much supervision the Company exerts over the worker. The existence of an independent contractor or freelancer agreement is helpful but not dispositive. Actually, none of the factors are dispositive alone – the Department of Labor and courts use a balancing approach.

The Department of Labor may also focus on whether any of your workers are paid in cash and off the books. As a result, the proper payroll taxes are not being paid for these workers. While paying a worker in cash may be permissible, it is not permissible to not file the appropriate payroll tax returns and related documents and not pay the appropriate payroll taxes.

Freelancer.Image.Dollar.Photo.Club.3.9.15.jpgIn an audit, your documents and records are critical and can help or hurt you. Contact our New York Audit Defense Lawyer to learn how to protect your business during an audit or misclassification challenge. Other challenges can include a review by the IRS in response to an SS-8 form being filed or coordination efforts with the state agencies.

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.