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New York State Department of Labor Audit & Penalties, Fines and Other Legal Consequences

NYS Labor Department Audit, Investigation and Risks

Audit.Rip.Through.Newspaper.Dollar.Photo.Club.9.11.15.jpgIf you receive a notice from the NY Department of Labor (DOL) UI Division, it is important that you take it seriously. An audit is a serious matter that can have a significant impact on your business. Over the past few years, the DOL has increased the number of investigations and audits of businesses to ensure that they are compliant with NYS labor laws. This audit may focus on whether you have properly classified your workers as employees and independent contractors. A misclassification of worker status can lead to penalties, fines and potentially other government review. Our Award Winning Labor Department Attorney has represented businesses in a variety of industries (transportation, delivery companies, photographers, media, entertainment, personnel agencies, medical offices, IT companies and other services related businesses) and helped them understand their obligations under the law, their potential exposure and how to develop best practices to protect their business. We have discussed the misclassification issue and a Labor Department Audit before. This blog will focus on what the potential penalties and consequences if your business is found liable in an audit or related matter. These cases are increasing and affecting companies of all sizes including Uber, Handy, Amazon and Google. It is important to seek counsel from an experienced employment lawyer to understand the process and rights from the outset.

Why Would a Business Try to Misclassify A Worker as an Independent Contractor Instead of an Employee?

Many businesses treat workers as independent contractors and not as employees in a method to avoid paying payroll taxes and to avoid workers from collecting unemployment insurance benefits and gaining coverage under workers compensation law and employment discrimination statutes. These businesses may not realize that just calling a worker an independent contractor is a very risky practice and will not have the intended results. The DOL and courts will examine the working relationship between the worker and the company. While the specific test for worker status varies by agency, our attorney has lectured on some of the key factors. If the worker was misclassified, there could be serious consequences. A well meaning business can face these same consequences as well because intent is not a factor in a misclassification analysis. So, if a worker asks you to treat him or her as a contractor and not an employee – do your own analysis and understand your risks – even if the worker at issue does not complain, your business could be subject to an audit randomly or due to another complaint.

What If I Misclassified My Workers?

If the Department of Labor or other agency or court finds that the independent contractors were indeed employees, some of the potential issues are:

Money.Gavel.Dollar.Photo.Club.1.18.16.jpg1. Your business could be liable for back payroll taxes. This can be substantial depending on the number of workers and the length of non-compliance. Do not pay any penalty or fine before getting experienced legal counsel as that can have serious consequences in other forums or potential cases. You may also need to correct your tax records but will need careful coordination between employment law counsel and your CPA.

2. If the worker worked over 40 hours per week in a work week, you could be liable for back overtime pay and meal and break periods, if applicable. Again, this can be substantial depending on the number of concerned workers.

3. Your business could be liable for employee benefits to the misclassified workers. For example, if your company provides health insurance to employees – it could be responsible for providing medical coverage and paying for medical bills that were incurred when the worker was a contractor.

4. Employee Benefits Part Two: If you provided vacation and other paid time off to workers, you could be liable for the value of paid time off to the workers.

5. Employee Benefits Part Three: If you provided stock options or participation in a pension plan, you may be responsible for making the workers whole. As Microsoft found out in the 1990’s, this can be very complicated and expensive.

6. Further review and investigations by other government agencies.

7. Your business model going forward may need to be modified.

Best.Practice.Light.Bulb.DOL.Audit.Dollar.Photo.1.18.16.jpgThis is not a complete list nor does it apply in ever circumstance. Businesses could also be subject to a class action lawsuit by affected workers. As you can see, the misclassification ramifications can be tremendous. You should consult an experienced employment lawyer for advice and counsel on your specific case and learn how to develop best practices, your options and your defenses.


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.

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