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Why You Need to Be Concerned About Worker Misclassification

Nance Schick · May 9, 2022 ·

(Updated from the original post on 01/20/2020):

Worker Misclassification occurs when a person or entity classifies a worker as a non-employee. Regardless of whether this was an intentional act, the penalties can be in the tens of thousands. Commonly employers misclassify workers to avoid the costs of:

  • Disability Insurance
  • Income Taxes
  • Payroll Taxes
  • Paid Family Leave
  • Workers Compensation Insurance
  • Unemployment Insurance (“UI”)

Your Homeowners Policy Probably Doesn’t Cover Your Full-Time Housekeeper

Sometimes, the misclassification occurs because of an unintentional misunderstanding of a homeowners insurance policy. I’ve defended many domestic employers who didn’t realize these policies didn’t cover their full-time nannies or their parent’s live-in aides.

Employers Use a Lot of Fancy Terms to Misclassify Workers

The workers at issue can be known as:

  • Freelancers
  • Independent Agents
  • Interns
  • Permalancers
  • Subcontractors
  • Volunteers (in a for-profit business?!)
  • Etc.

Call them what you like, but if they have not established business entities to provide the services they are providing you, then 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.

The Gig Economy Was Created by Media Not Lawmakers

Technology and the gig economy have made the distinctions between employees and independent contractors difficult to identify, and no industry is immune. For decades, 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.

The various agencies regulating employee rights are better than ever at identifying misclassifications, so you need to be better at it, too. Events that can trigger a Workers’ Compensation Board or Department of Labor 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 UI benefits, listing you as an employer instead of a client
  • 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 and run your first payroll, even if you only pay yourself

DISCLAIMER

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.



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Nance L. Schick, Esq. is an attorney, mediator, conflict resolution coach, and diversity trainer based in New York City. Her goal is to keep employers out of court and build their conflict resolution skills so everyone has a better work experience. For more than 15 years, she has been negotiating penalty settlements for employers who unintentionally misclassify their workers. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution, and an award-winning entrepreneur acknowledged by Super Lawyers (ADR, 2018, 2019 & 2020), the New York Economic Development Corporation/B-Labs (Finalist, Best for NYC 2015 & 2016), U.S. Chamber of Commerce (2015 Blue Ribbon Small Business), Enterprising Women Magazine (Honorable Mention, 2014 Woman of the Year awards), and more.

Hostile Work Environments, Penalty Resolution, Small Business Management freelancing, gig economy, independent contractors, penalty negotiation, self-employment

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