Worker Misclassification occurs when a person or entity classifies a worker as a non-employee. Whether an intentional act to avoid the costs of disability Paid Family Leave, workers compensation, and unemployment insurance, or an unintentional misunderstanding of a homeowners’ insurance policy and tax laws, the penalties can be in the tens of thousands.
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 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. For more than a decade, New York State has been penalizing businesses of all sizes for misclassifying workers, even when there has been an honest mistake and no actual harm.
- 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 (EIN) 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
Concerned you’ve misclassified employees? Tell me more
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 worker misclassification. 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.
Nance L. Schick, Esq. is an attorney, mediator, and conflict resolution coach whose goal is to keep you out of court and build your conflict resolution skills. She helps managers and business owners talk to employees about difficult issues such as gender, race, religion, and disability. She also negotiates penalty settlements for employers who unintentionally misclassify their workers. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution: Seven Choices and Five Actions of a Master, and an award-winning entrepreneur, who has been acknowledged by Super Lawyers, the New York Economic Development Corporation/B-Labs, U.S. Chamber of Commerce, Enterprising Women Magazine, Urban Rebound NY/Count Me In, The Kauffman Foundation, and more.