The New York State Department of Labor (DOL) is increasingly auditing more and more businesses to investigate and, if appropriate, collect unpaid employment-related taxes. There are several areas in which employers can be at risk. Two of the most common liability concerns focus on the misclassification of employees as independent contractors and paying workers off the books. While a business may incorrectly believe it is gaining a short term advantage in doing so or does so unknowingly, either scenario can cause substantial liability to a business. Best practices dictate that you conduct a careful analysis of whether a worker is an independent contractor or employee before he or she starts providing services for you. Often this is not a simple determination and it requires a fact-intensive review. In this area, no one size fits all – just because one worker is an independent contractor does not necessarily mean another is. A written agreement will not necessarily control – the nature of your relationship with your worker will be critical. Our Employment Law Attorneys have advised many businesses in the regard and can confidentially speak with you. If you have received a notice of audit or determination letter (sample letter is listed below), it is important that you seek experienced employment law counsel immediately as a delay or misstep can be very damaging. As you can see from the sample letter, the penalty amount can be increased for willfulness and interest can add up. Your business may have additional exposure from other government agencies and in a lawsuit based on a misclassification claim. The cost of defending these claims can be very expensive in money and time. Compliance and early action by experienced counsel who can present your defense in the best light can save you many headaches. Call our office now at (800) 893-9645 to learn how to protect your business and life savings.
EXAMPLE OF A DETERMINATION LETTER
As a result of a recent examination of your records by our Field Representative, it was found that you have failed to properly report some taxable wages to the Division for unemployment insurance tax purposes. We have determined that contributions due in the amount of $30,000.00 for the period of first quarter of 2008 to second quarter of 2011.
Section 570.4 of the New York State Unemployment Insurance Law provides that if any part of any deficiency is due to an intent to avoid paying contributions to the Fund, fifty percent (50%) of the total amount of the total deficiency, in addition to the deficiency itself, shall be assessed, collected and paid in the same manner as if it were a deficiency.
During the audit of your records, our auditor found that although a previous audit of your records indicated that you must pay contributions on the renumeration paid to all of your employees, you failed to include the earnings of these persons in quarterly reports subsequent to the prior audit period. This action indicates an intent on your part to avoid the payment of unemployment insurance taxes and we have, therefore assessed a penalty of $15,000.00 in accordance with the law, resulting in the total amount due of $45,000.00. This does not include interest to date or any previous underpayment to your account.
We suggest you remit the amount due as soon as possible to avoid the further accrual of interest. Interest is assessed on late payments at the rate of 12% per annum from the due date to the date of actual payment. When submitting payment, enter the amount of your remittance on the enclosed Employer Payment Transmittal, and forward your check to New York State Employment Taxes, PO Box 4301, Binghamton, NY 13902-4301.
If you disagree with our determination, you may request a hearing within thirty days of the date of this letter. Your request must be in writing and include the basis of your disagreement.
If you have received a letter similar to the sample one above, please call our office to learn your rights.