NY State Department of Labor Audit

If your Company uses independent contractors, consultants or freelancers, there is a good chance that your company may receive a letter from the New York State Department of Labor (“DOL”) Unemployment Insurance (“UI”) Tax Division stating that your company has been selected for an audit. How you decide to respond to this seemingly innocuous one page notice can be a turning point in your company’s life – whether you are a big or small business. You should take the notice seriously as it can impact the core of your business model. Uber, for example, is fighting several misclassification of employee cases including one with the CA Department of Labor. The worst thing you can do is to ignore the notice. In many cases, the Department of Labor will scrutinize whether you have properly classified your workforce or misclassified employees as independent contractors or interns. The frequency of these audits has increased in recent years. New York State conducted over 12,000 just last year alone. Our Awarding Winning New York Employment Lawyer has protected many small businesses during these audits and the investigation process. Contact our office for a confidential consultation to learn your potential exposure, compliance requirements, and how to protect your business interests.

There are many reasons your company could have been selected for an audit. For example, the audit could been randomly initiated due to an industry-wide review or it have been commenced due to a complaint by a disgruntled former worker. Regardless of the reason, you should get in front of the audit process and prepare yourself.

The first step to contact an experienced employment lawyer. In general, while you can represent yourself or have your accountant represent you, we do not believe that is not advisable in every instance since adverse results of the DOL audit can trigger domino effects in other legal forums. For example, if a worker was found to be misclassified and should have been treated as an employee, the company could be liable for overtime payments depending on the circumstances. It is best to present a strong defense and ensure that your practices are compliant (and if they are not, become compliant).

You should start obtaining the requested documents for the audit – for many companies this seemingly simple task is arduous because its record keeping practices need improvement. Payroll and time records are your friends and they can be important to your defense. Ideally, you should conduct an internal review of your company’s potential exposure prior to meeting with the auditor.

Frequently Asked Question 1: I should be fine because the worker asked me for a 1099 tax form and called himself or herself an Independent Contractor, right?

No. The DOL will conduct a fact specific inquiry regarding the nature of the worker’s role and the amount of supervision, direction and control placed on him or her (among other factors). Simply calling a worker an independent contractor is not a bulletproof defense. Even if a worker and a company agree that the nature of the working relationship is an independent contractor, the DOL can still find otherwise. It is important to become educated about the law and be in compliance because even well intending companies can face exposure – no bad intent is required for a misclassification violation.

Frequently Asked Question No. 2: All my independent contractors or freelancers signed agreements stating they are not employees so I should be protected, right?

No. A signed independent contractor agreement is not dispositive and is just one of the many factors that the DOL considers. It can be helpful but is not controlling alone.

This area of law is very fact specific and requires an individualized assessment in each case. Feel free to contact our office to learn your rights and options before the State’s investigator comes to your office for a visit.