Update on Worker Misclassification
By Andrew A. Kimler, Esq
Over the past few years there have been several significant developments in connection with employee misclassification. This usually involves the classification of a worker as an independent contractor when in fact he or she does not meet the criteria for this classification. As a result, both New York State and Federal agencies have ramped up their efforts to target employers who engage in employee misclassification. In fact, both the Internal Revenue Service and the United States Department of Labor have agreed to coordinate their efforts and are sharing information in order to stop this practice.
There are a variety of reasons why both State and Federal agencies are cracking down on the misclassification of workers. Among other things, the misclassification of employees results in lost revenue such as income taxes, workers' compensation and unemployment insurance. Indeed, one study showed that there was a $54 billion shortfall in unreported employment taxes.
Companies that are found to have violated the law by misclassifying their employees face stiff fines as well as other penalties. For example, a New York State task force has assessed more than $4.8 million in unemployment taxes, over $1 million in unemployment insurance penalties, over $12 million in unpaid wages and over $1.1 million in workers compensation fines and penalties. Thus, it is incumbent upon all employers to make certain that they make every effort to properly classify their workers.
There is no simple test for determining whether a worker should be classified as either an employee or an independent contractor. Indeed, there are various criteria that are taken into consideration and generally speaking, such determinations are made on a case by case basis. In fact, we have on occasion encountered frustrating situations whereby different governmental agencies disagree as to whether a particular worker's activities make him an employee as opposed to being an independent contractor. The primary consideration in every case, however, is the level of control that is exercised over the worker. In that regard, the agencies generally consider whether the worker is subject to the control and supervision of the employer and is rendering services that are an important part of the employer's business or whether the worker is actually involved in an independent business, offering services to the public and assuming the profit and risk of providing those services. For example, individuals who are required to attend training sessions, are responsible for hiring and firing other employees, devote substantially full time to the employer's business and are reimbursed for their expenses are generally viewed as employees. There are, however, other criteria that may be considered hen determining whether or not the worker is actually under the company's control and thus should be deemed to be an employee.
Suffice it to say, if a company is unsure of whether or not its classification of a worker is appropriate, it should obtain some feedback from its attorneys to make certain that it is acting in accordance with law. Failure to do so can result in the imposition of significant penalties and fines from government agencies.
Andrew A. Kimler, Esq. is the Partner in Charge of Vishnick McGovern Milizio's Employment Law and Litigation Practice. Mr. Kimler can be reached 516-437-4385, ext. 122 or via email at Akimler@vmmlegal.com.