NYS Department of Labor Audit Attorney
I got Audited for Using an Independent Contractor or Freelancer
Our Award Winning NY Employment Law Attorney protects small businesses that are being audited or investigated by the New York State Department of Labor. Your business could have been selected for an audit or investigation randomly, due to a complaint or for other reasons by the Unemployment Insurance Division. Regardless of the reason, it is important to ensure your workplace practices are compliant with the New York Labor Law and related statutes. There are different rules for using an independent contractors and employees and the audit may focus on your proper (or improper) classification of workers. An incorrect classification can lead to unpaid payroll taxes and additional potential consequences with other government agencies. It is important to understand your potential liability and defenses. Contact our office for a confidential consultation regarding your specific situation at (800) 893-9645.Who is an Independent Contractor?
An independent contractor is not covered by the NYS Unemployment Insurance Law. There can be a debate over who is an employee and independent contractor. Generally, a Company supervises and controls the direction of an employee’s work while an independent contractor has a specialized skill, works on his or her own schedule on an project or intermittent basis and exercises control of his or her work. While there is no single factor or group of factors which is conclusive in determining whether a worker is an employee or freelance independent contractor, the Department of Labor has stated that it considers the following factors:
1. The Company’s degree of control over the worker’s activities by such means as requiring full time services, stipulating the hours of work, requiring attendance at meetings, and requiring prior permission for absence from work. An employee’s work performance is usually controlled and supervised.
2. Whether the Company requires the individual to comply with instruction as to when, where, and how to do the job. This is an important factor. The more instruction a worker is given, more likely he or she is an employee.
3. Whether the Company provides direct supervision over the services performed.
4. Whether the Company provides office space, equipment, tools, or supplies for the performance of the services.
5. Who sets the rate of pay – was it negotiated or set by the Company?
6. How is the compensation paid – is it paid via a salary, an hourly rate of pay, or a drawing account against future commissions with no requirement for repayment of unearned commissions.
7. Does the Company provide reimbursement for business expenses?
8. Does the Company provide any fringe benefits like paid time off?
9. Does the Company provide training to do the job? If so, is attendance at training sessions required.
10. Does the Company require the services to be rendered personally? Typically, a contractor can assign his or her duties while an employee cannot.
11. Is the worker required to provide oral or written reports or status updates?
12. Are the worker’s services performed an integral part of the business, particularly when performed on a continuing basis or an ancillary part of the business.
13. Does the Company provide the worker with business cards, or other means of identification of the individual as a representative of the employer. A big issue here can be whether the Company provided an email address or specific email
14. Is the worker restricted from working for other companies? Did the worker sign a non-competition or non-solicitation agreement?
15. How can the relationship be terminated – is notice is required or can it be terminated immediately like an employment at will relationship?
16. Is the work performed specialized or administrative in nature?Why Does it Matter how I Classify My Workers?
Small business owners often say that they treat their workers fairly and both parties are not complaining (except in cases of random audits) so what is the problem? New York State requires that workers be treated in accordance with the Labor Law. Even if the worker signed an independent contractor agreement and both parties believe there is a consulting/independent contractor type relationship, New York State will still review the factual circumstances surrounding the working relationship and make it own determination. The Department of Labor can find a worker was misclassified even if there was an independent contractor agreement or no complaint by the worker – the Department’s determination is based on the totality of the working relationship. An adverse determination can lead to a bill for unpaid payroll taxes for many employees going back 3 years, interest charges, and potentially other investigations from other government agencies. Call our experienced NY Employment Law Attorneys to learn best practices and how to protect your business at (800) 893-9645.