Workers can generally be classified into two groups: employees and independent contractors. The difference between the two types of workers is important under the law because employees have far more protections and rights than independent contractors. Employers must also pay more for employees in terms of taxes and insurance.
In some situations, employers purposely classify workers as independent contractors instead of employees because they want to avoid the extra reporting requirements, obligations, and expenses associated with having employees. This practice is often referred to as “misclassification,” and it is illegal.
Not every misclassification is purposeful. Some employers, especially small businesses, do not truly understand when a worker should be classified as an employee. Unfortunately, misunderstanding of employment law is not a defense to a misclassification charge in the State of New York. Both workers and employers can benefit from a thorough understanding of the differences between independent contractors and employees.
What Are Independent Contractors?
An independent contractor is just that—independent. They are often referred to as “freelancers” as well. Some consider themselves business owners as well. Independent contractors often work with their client on a particular project and are frequently paid by the job. The relationship often ends when the project is complete instead of continuing indefinitely.
A contractor retains a great deal of control over the work that they do. They often dictate their own schedule, and the client’s only input is how the end product will look. The customer has little contribution to the process but may approve the final product. There is often a contract between the two parties, whether it is written or verbal. Independent contractors often have multiple clients and are considered self-employed for tax purposes.
What Is an Employee?
The major difference between an independent contractor and an employee is the degree of control that the employer has over the work performed. If the company can control how the worker does his or her work, the worker is more likely to be considered an employee. Employers can usually dictate when an employee performs their job as well.
An employer deals with the business aspects of the company. This might include providing the worker with the tools and resources that the worker needs to complete their job. An independent contractor will usually provide their own tools or equipment.
Employees are also usually paid by the hour or based on a salary. They may also be paid on a commission basis as well.
Consequences of Misclassification in New York
Employees have more benefits than independent contractors, which means they are more expensive for businesses generally. These costs/benefits involve disability benefits, unemployment insurance, workers’ compensation, social security, and tax withholding. Employees also have protections from New York minimum wage and overtime laws.
Employers that misclassify workers often must pay back taxes and related costs. They are also exposed to penalties and interest on these payments as well. Failure to comply with classification requirements can put some businesses, especially smaller companies, out of business completely.
If you are unsure how to classify your workers or if you are an independent contractor who thinks you should have an employee classification, you need to contact an employment law attorney to discuss your rights and options. Call the Law Offices of Yale Pollack, P.C. at 516-262-5048 for more information.