(Updated from 12/20/2021)
Each time I read an article that encourages readers to use independent contractors instead of employees to build their new businesses, I cringe. It’s not that independent contractors are generally a bad idea. I’ve worked with many who have skills I do not. From build a website to designing a book cover, I’ve had the pleasure of working with some exceptional professionals.
Did you notice that they worked on specific projects? I’ve worked with some on longer-term bases, but our contracts specifically outlined the deliverables the contractors would produce. They curated some of the content here on this blog, while also working with other clients on similar writing or marketing projects.
If I needed ongoing administrative support, I hired an agency that considered the virtual assistants (VAs) their employees, who they loaned to me. Otherwise, I made those VAs my employees.
I know how easy it is to get penalized for misclassifying workers in New York. I also know that many employers who go without workers compensation (WC), disability (DB), Paid Family Leave (PFL), and unemployment insurance (UI) are often surprised how affordable it is–especially in comparison to the penalties that accumulate at a rate of $2,000.00 for each 10-day period of non-compliance.
Do the math. If you have an uninsured employee for 60 days, you could be assessed a $12,000.00 penalty! It is rare that employers come to me with penalties less than this amount. I’ve seen them as high as $500,000.00!
Do I have your attention now?
Many (presumably) well-meaning publications and organizations encourage the use of independent contractors without explaining the very detailed criteria for properly classifying them. This gets far too many small business owners in deep financial trouble. The money these employers think they saved on WC, DB, PFL, and UI benefits get paid instead to the respective Department of Labor (DOL), Department of Taxation and Finance (Tax Dep’t), or the Workers Compensation Board (WCB).
Four key points you need to remember when hiring someone to do work for your business:
- It is not the number of days worked that makes a worker independent. You can hire someone who has a full-time job somewhere else for casual work in your business, and that person can still be deemed your employee, too. It’s based on the type of work he does. Did you hire your friend (not his business) to help you move some office furniture into your new space? Or did he help you with registration at your one-day event? He could be your employee.
- It is not the number of hours worked that matters. You can have a bookkeeper who only works for you three hours per week (or month) be deemed your employee in New York. Likewise, that day laborer whose full name you don’t know probably became your employee when you hired him to help paint your customer’s interior trim for a few hours on the day you were short-handed.
- The type of work you and the worker do matters–a lot. If you’re a web design company and you hire “freelance” web designers, they are probably your employees. If you hire VAs to do basic administrative tasks, they are likely your employees, too.
- There are exceptions. If the friend you hired owns a business that provides the same services to others as those he provided to you, he is probably your vendor, not your employee. If the web designer you hired has an established design firm with many other clients like you, she might be a true independent contractor. If your VAs are employees of a service you hired, the employment relationship will likely remain with the service.
You will notice that I used terms such as probably, likely, and might. This was intentional. The status of every allegedly independent worker is considered in light of the unique circumstances of the work and the relationship.
You cannot rely on your Independent Contractor Agreement. It might conflict with the laws of the state(s) in which each worker provides services.
You cannot assume that the service you hired is assigning you one of its employees.
You must do your own due diligence.
Concerned you’ve misclassified employees?
This page and website contain attorney advertising and a general overview of penalty issues that arise when employers misclassify their workers as independent contractors. It is not legal advice. If you require information or advice applied to your unique situation, please make an appointment to discuss it with an attorney experienced with the subject matter. Don’t rely solely on what you read on the Internet. Ever.