Agencies Pursuing Employers who Misclassify Non-Employees in New York

The Labor Department will be sharing information with nearly a dozen states, including New York's Attorney General, and the Internal Revenue Service in a push to crack down on businesses that cheat workers out of wages by misclassifying them as independent contractors. Wage and hour determinations vary greatly based on how a worker is characterized.

By sharing information Labor officials will be able to target businesses that misclassify workers as independent contractors or non-employees to avoid paying the minimum wage and overtime pay. An employer can also avoid paying for workers' compensation, unemployment insurance and federal taxes by classifying a worker as a non-employee.

What is the difference between an employee and an independent contractor?

There are many factors that contributes to a court's determination of whether a person is an employee or an independent contractor. In very simplistic terms, a person is generally considered an employee of a company or entity when that company exerts substantial control over how the person completes his or her work or the fruits of the person's labor. On the other hand, an independent contractor uses his or her own methods to complete work and might only agree to perform a specific piece of work for a fixed price. A Cornell study found that approximately 10 percent of New York's private-sector workers were misclassified as independent contractors.

The distinction between an employee and independent contractor can be difficult to determine. One example is FedEx Ground, which claims its drivers are independent contractors because they own their trucks and sell their routes. The attorney general of New York and several other states are investigating whether this is the correct classification. Because of their classification FedEx drivers are unable to unionize and not subject to wage and hour laws.

Penalties for violation

Employers that improperly categorize employees may face the following consequences:

  • Federal penalties and fines may be assessed, because the employer failed to withhold Federal employment taxes.
  • The employer may owe substantial back taxes.
  • Workers may be entitled to significant unpaid overtime wages.

In 2010 New York passed even stronger legislation to curtail the problem. The "Construction Industry Fair Play Act" now makes it a criminal offense for an employer to willfully misclassify a construction worker as an independent contractor. Punishment is 30 days in jail for the first offense and 60 days for each subsequent offense.

Increased enforcement

Between 2007 and 2010, a New York task force identified more than 31,000 misclassifications, assessed $11 million in unpaid unemployment taxes and $14.5 million in unpaid wages. In 2010, the Labor Department collected nearly $4 million in back wages for approximately 6,500 employees who had been misclassified. This was a 400 percent increase from the amount collected in 2008. The department has even hired additional workers to investigate wage theft complaints.

When questions arise about whether you are entitled to overtime, unemployment or any other issue relating to the relationship you have with your employer, contact an experienced wage and hour attorney to discuss whether your position is classified correctly. You do not want to miss out on wages or benefits that are rightfully yours.