When you provide services for pay, your employment status is that of either an “employee” or an “independent contractor“. Your employment status is important since employment law treats employees and independent contractors very differently. As New York employment law attorneys point out, these differences give employers many administrative and financial incentives to (mis)classify you as independent contractors when employers should classify you as an employee.
New York employment law attorneys put it in simple terms, when an employer classifies you as an independent contractor there is no benefits package, including no overtime pay, sick days, vacations days, health insurance or pensions. The employer does not have to withhold taxes from your pay and avoids paying unemployment insurance, Medicare and Social Security for those workers. Employers provide independent contractors with an Internal Revenue Service (IRS) Form 1099 in place of the Form W-2. Independent contractors are not protected under The Fair Labor Standards Act (FLSA).
Employers can suffer serious consequences for misclassifying employees as independent contractors. Failure to classify properly an employee can lead to substantial financial liability. In addition to retroactive wages and benefits owed the misclassified employees, there are taxes, substantial fines and penalties involved. Areas that misclassification can effect include:
- Worker injury claims. If an injury occurs on the job, state workers’ compensation laws usually provide compensation for the injured party. If an independent contractor files a claim and is determined to be an employee of the organization, it could result in civil action and fines against the employer.
- Worker unemployment claims. In some states, unemployment compensation claims by workers classified as independent contractors may trigger an audit of the employer. If the audit finds misclassification, the employer is liable.
- Discrimination claims. Though anti-discrimination law has not generally afforded protection to independent contractors, caution is in order. Some courts have allowed the protection to spill over to include independent contractors.
- Federal tax liability. The adjective that comes up most often to describe the financial liability for misclassification of employees is “onerous”.
- Third party liability. Responsibility for injured third parties may hang on the determination if a worker is properly classified. A word of caution to employers: Some courts have found that using independent contractors does not shield an employer from liability.
State and federal officials have stepped up their pursuit of companies trying to pass off their employees as independent contractors. If you are located in New York and believe an employer has misclassified you as an independent contractor, you may be entitled compensation and should contact New York employment law attorneys for a consultation.