Articles Posted in Department of Labor & Independent Contractors

Misclassification of workers in the healthcare field is a hot issue and it is an area where many practices make a misstep leading to potential exposure involving the Department of Labor (DOL). Many practices treat physicians, doctors, dentists, therapists or similar professionals as independent contractors instead of as employees. The New York State DOL can investigate your practice’s workforce classifications. Depending on the circumstances this can raise some legal concerns. The New York Court of Appeals decision, In Re Concourse Ophthalmology Associates P.C., 469 N.Y.S.2d 78 (1983) discusses the proper employment status for multiple ophthalmologists working in a professional corporation. The court issued the following test for medical providers in determining whether an employee-employer relationship exists for purposes of the Unemployment Insurance Law:
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If you are an employer in New York State, you are subject to the NY Unemployment Insurance Law except for minor exceptions. It is important to understand your obligations and responsibilities (ideally) before you are audited or sued by a former employee in an employment law claim, both of which can be distracting and expensive for a business. It has been estimated that NYS conducts over 10,000 audits per year and employers can face tens of thousands of dollars in monetary exposure. Our experienced Award Winning NYS Employment Law Attorney has counseled employers regarding preventative issues and defense issues. Contact our office for a confidential consultation to understand your situation. Possible areas of exposure can include misclassification of your workers (improperly treated an independent contractors), paying your employees off the books, etc. It is important to get counsel before you classify a worker because the consequences can often impact a group of employees and have significant penalties and fines. Furthermore, the audit can trigger additional governmental inquiries (IRS, NYS Labor Department Labor Standards Division which handles minimum wage and overtime complaints, etc.) In short, this is something companies should try to get in front of and if that is not possible – companies should examine their legal exposure quickly and make any corrections to their practices if necessary. Lack of knowledge or an innocent error is not necessarily a defense in a misclassification case.

Section 575 of the New York State Unemployment Insurance Law requires that every employer keep records of each person in its employ, including the name, social security number, and the amount of remuneration paid to each, and that such records shall be open to inspection at any time and as often as necessary by duly authorized representatives of the Commissioner of Labor.

Companies who use freelancers, contractors, consultants, day laborers or any other workers who are not categorized as employees must exercise extreme caution. The NYS Labor Department and other agencies have stepped up their enforcement efforts to investigate companies’ practices and whether workers are properly classified in all industries. An innocent error can lead to a multitude of problems for businesses including but not limited to a class action lawsuit and monetary damages in the form of unpaid payroll-related taxes, unpaid overtime wages, and failure to provide employee benefits (vacation pay, health insurance, etc.) Companies should carefully examine a worker’s duties and determine the proper employment characterization before work is commenced. There are different rules that apply to employees and contractors. In general, employees are issued a W-2 tax form, provided with Wage Theft Prevention Act Notices and paid accordingly to applicable federal and state labor laws. Conversely, in general, contractors are issued a 1099 tax form, have some expertise, and are not supervised or controlled by the business.
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Have you received a notice from the NY Labor Department regarding an audit confirming your compliance with labor laws? Audits and investigations are on the rise. If you have received a notice, the first steps you take are critical to defending your business and protecting your interests.

1. Understand what the audit is about. Speak with an experienced employment lawyer first. We have represented small businesses and household employers in New York State and can help you understand the process.

2. Start gathering your documents and information together. Are your general ledger and payroll related documents in order for the past three years? Strong contemporaneous documentation can help you and conversely, the lack of records can be problematic for a number of reasons.

3. One of the main inquiries may be whether you used any independent contractors, paid workers off the books or misclassified any of your workforce?
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Have you checked off the correct box for your workers? Are they employees or independent contractors (i.e., freelancers)? Today’s post discusses a rising problem for small businesses – misclassification of workers – and a recent case. Ivy League Tutoring Connection Inc. (the “Company”), a tutoring referral and billing service, provided in-home tutors to clients to help with test preparation and school work. The Company had treated its tutors as independent contractors and issued them 1099 tax forms. The Company’s practices came under review in 2012 and, after a hearing, the Department of Labor ruled that tutors were employees and unemployment insurance contributions were due regarding tutors from 2009-2012. A determination like that can have a significant impact on any business. The Company’s appeal to the Unemployment Insurance Appeal Board was denied as the initial determination was upheld. The Company then appealed to the Appellate Division, Third Department and we discuss the court’s decision generally today. We previously discussed another decision involving tutors before and it can be found here.
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In an Appeal Board decision, certain tutors for The Learning Shop, Inc. (the “Company”) were found to be employees and not independent contractors. As a result, the Company was liable for unemployment insurance related tax contributions for years covering the audit period. Each misclassification case depends on the facts and the nature of the parties’ working relationship. This blog post generally discusses the Learning Shop decision issued in 2013 but the lessons can be valuable for other industries.
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Our Award Winning New York Department of Labor Defense Attorney has discussed frauds allegedly perpetuated by employers. For example, we have discussed the issues and consequences of paying employees off the books and misclassification of workers. Both of these deprive New York State of payroll-related taxes. This blog post will discuss a third type of fraud – SUTA (State Unemployment Tax Act) Dumping. On August 2, 2005, Governor Pataki enacted legislation to mirror the federal SUTA Dumping Prevention Act of 2004.

As you can see, it is a relatively new law. It may be investigated by the Department of Labor. It can be investigated by other agencies but this blog post focuses on enforcement under New York Law and by the NYS Department of Labor. It occurs when a business intentionally manipulates its unemployment insurance contribution rate. An employer’s unemployment insurance tax rate and liability to New York State is partially based on the number of unemployment insurance claims against it; if the employer transfers all of its employees to a new company with no history of claims it will obtain a lower rate and save substantially on its tax obligations.
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