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New York Department of Labor Audit and Use of Independent Contractors – Misclassification Analysis

Thumbnail image for Thumbnail image for above-the-bar-logo-no12.jpgThe NYS Department of Labor has recently increased its enforcement, including conducting investigations and issuing penalties, against companies who classify workers as independent contractors instead of employees. This classification determination is critical and should be made before the workers starts providing services. If there is a misclassification, the results can be financially significant for companies. In addition to an audit by the DOL, your business could face inquires from the IRS and other NYS agencies and/or be sued in a class action by one of your workers. It is imperative that you seek experienced employment law counsel immediately to ensure that your practices are compliant with federal and state law especially in light of new legislation including the NY Wage Theft Prevention Act. Just calling a worker an independent contractor is not a defense nor is having a template agreement stating the same — these are common errors by businesses. Call our award winning employment counsel at (800) 893-9645 to confidentially discuss whether your workforce is properly classified and how to defend your business from an audit and related investigations.

In general, New York courts use an “overall control” test under which is it very difficult to demonstrate an independent contractor relationship. No one factor is dispositive; rather, the inquiry is focused on who controls and directs how, where and when the services are performed. Below are some is a list of some of the factors considered for the analysis:

  • Requires full-time work
  • Sets work hours
  • Requires attendance at meetings and / or training
  • Requires prior permission for absences
  • Tells the individual when, where, and how to do the job
  • Directly supervises the job
  • Provides facilities, equipment, tools, or supplies
  • Sets the rate of pay
  • Provides compensation in the form of:
  • Payment is made based on an hourly rate of pay or a draw account against future commissions with no requirement to repay unearned commissions
  • Provides reimbursement or allowance for business or travel expenses
  • Provides fringe benefits
  • Sets time, money, or territorial limits
  • Requires services to be rendered personally
  • Requires oral or written reports
  • Makes the services an integral part of the business, particularly when performed on a continuing basis
  • Furnishes business cards, or other identification of the individual as a representative of the employer
  • Does not allow the individual to perform services for competitive businesses
  • Reserves the right to end services on short notice
  • Supervises unskilled labor (or is subject to supervision)
  • Worker offers his or her services to the general public
  • Worker advertises his or her services to the public through media advertising
  • Worker maintains his or her own commercial telephone listing
  • Worker has his or her own business cards and stationery
  • Worker carries business insurance
  • Worker maintains own establishment
  • Significant investment in facilities (Hand tools and personal transportation are not significant)
  • Risk of profit or loss in providing services
  • Freedom to work own hours and to schedule own activities
  • The worker has no requirement to: (i) attend meetings or training sessions; (ii) provide oral or written reports; and (iii) has freedom to provide services for other businesses (competitive or not).
  • It is worth noting that some state agencies and the IRS use a different test and/or factors. As you can readily be seen, it is difficult to escape a finding of employee/employer relationship and establish an independent contractor relationship. Prevention of independent contractor/employee disputes requires careful legal analysis. Incorrect classifications can lead to class-wide implications and liability. If you have any questions regarding your use of workers, please call our office to speak with our experienced employment law counsel.


    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 employment law attorney in your state or jurisdiction.

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