Determining whether individuals are “independent contractors” or “employees” can be tricky. Yet the stakes are high, as a misclassification can lead to costly penalties and fines. As such, it’s important to “get it right.” Merely calling an individual an “employee” does not make it so.
The independent contractor versus employee inquiry focuses on the “right to control,” which requires an evaluation of all the circumstances surrounding the relationship between the employer and the worker, and depends upon a number of factors, none of which are dispositive. Such factors include, but are not limited to, whether the employer: (1) chooses when, where, and how an individual must perform his or her services; (2) provides facilities, equipment, tools and supplies; (3) sets the hours of work and/or rate of pay; (4) requires exclusive services; (5) requires attendance at meetings and/or training sessions; (6) asks for oral or written reports; (7) reserves the right to review and approve the work product; (8) evaluates job performance; (9) pays individuals via a 1099, without taxes deducted by the employer; (10) provides insurance for the individual. If the employer controls both the results produced by the job and the manner and means of accomplishing such results, the worker is considered an employee.
The costs of getting it “wrong” may be significant and include, for example, income tax liability for monies that should have been withheld from the “wages” of the “employee,” employer’s contributions of social security and federal unemployment taxes, potential overtime pay and other wage claim liability, state unemployment insurance payments, workers’ compensation insurance premiums, additional civil penalties and fines, as well as possible criminal sanctions. See Hart, et al. v. Rick’s Cabaret International, Inc., et al., 60 F.Supp.3d 447 (SDNY 2014)(In a class action lawsuit where dancers were misclassified as independent contractors rather than employees, the court awarded damages in the amount of $10,866,035.00, with the remaining damages to be calculated at trial).
If you are an employer doing business in New York State, you need to make sure you fully analyze any position to ensure the correct determination is made as to whether the individual filling such position should be classified as an “employee” or an “independent contractor.”
