Independent Contractors are exactly what their titles suggest. They are independent workers who are not employees of the people or entities they serve, and they provide their services under a contract that has been mutually agreed upon. Of course, in New York State (“NYS”), the contract is not always governing. The Workers’ Compensation Board (“WCB”) or Department of Labor (“DOL”) could decide that your contractor is an employee–and you could be harshly penalized–even if you and the contractor both want an independent relationship.
The workers at issue can be known as freelancers, independent agents, permalancers, subcontractors, and more. Call them what you like, but if they have not established business entities to provide the services they are providing, you might be required to provide workers compensation (“WC”) and disability (“DB”) insurance. You might be responsible for income tax withholdings, overtime pay, and payroll taxes. You might even be responsible for providing the contract that details the services they will provide, despite the fact that they are the experts in the work to be done.
Technology and the “gig economy” have made the distinctions between employees and independent contractors difficult to identify, and no industry is immune. NYS has been penalizing businesses of all sizes for misclassifying workers, and the costs can be in the tens of thousands, regardless of whether you’ve made an honest mistake and there was no actual harm.
Events that can trigger a DOL or WCB inquiry include:
- A freelancer files a claim under the Freelance Isn’t Free Act (“FIFA”)
- Your independent contractor begins to work beyond the scope of the original project, quits, and files for unemployment insurance (“UI”) benefits, listing you as an employer
- Your outside sales representative is involved in an accident while going to or from a sales meeting
- You register for an employer identification number and hire an employee
- You incorporate your business or form a limited liability company (“LLC”) and run your first payroll, even if you only pay yourself
We encourage you to schedule a Consultation with us (or an attorney with experience defending Worker Misclassification issues) to discuss your risks, before you hire any individual worker who does not own and operate a business that provides the same service you are hiring them to provide. You are at especially high risk of having individuals deemed your employees.
For more guidance on this topic, see the below blog posts:
- Six Things You Must Know Before You Hire Your First Workers
- Four Things You Need to Know About Worker Classification
- FAQ: What happens if the Board finds me liable, but I don’t have WC insurance?
- Nine Reasons Not to Hire Undocumented Workers
- Five Issues the NYS WCB Doesn’t Care About in the Claim Against You
NOTE: This page and website contain attorney advertising and a general overview of employment conflicts that might arise when working with 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.