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The Dangers in Identifying Your Workers as Independent Contractors

Many employers would like to classify certain of their employees as independent contractors rather than as employees.  It works for the independent contractor because nothing is deducted from his salary.  It works for the employer because, in addition to not having to withhold taxes, they do not have to pay state unemployment tax, comply with state and federal wage and hour law, or maintain workers’ compensation insurance.  Independent contractors get a 1099 at the end of the year rather than a W-2.  The problem is that when an employer terminates independent contractors, many apply to the State for unemployment insurance to which independent contractors are not entitled.  The effect of such a filing is to notify the State Department of Labor that this applicant for unemployment insurance may have been “misclassified”.  A Department of Labor audit of the applicant and all other “similarly situated”  personnel to determine if they are properly classified may be triggered and the employer may be held liable after the fact for all of the statutory benefits he failed to deduct from the independent contractors compensation.  This can be a nightmare and should be avoided at all costs.  If it cannot be avoided, it must not be approached without the assistance employment counsel like Egan Law Firm.

The “gig” economy has exacerbated this issue. Gig economy workers are essentially freelancers, independent workers who are employed in short-term work arrangements. They are always classified as independent contractors.  It’s estimated that 36% of US workers take part in the gig economy and 33% of companies extensively use gig workers.  The word “gig” refers to the transient nature of the job itself.  

In our current times with many employees out of work and employers experiencing fluctuating demand for the services or products they sell, a short-term work arrangement works for everyone.  Employers can hire people only when there is work to do and employees can work for several employers at once.  However, the fact that in the current business climate it may make more sense to hire part time workers from time to time, does not make the decision to classify them as independent contractors any less risky.  Any business seeking to lower overhead in this manner must first consult with employment counsel like Egan Law Firm.  It is best to consult with a New York employment lawyer rather than rely on rumors or the informal advice of colleagues. If you already have misclassified workers, you should contact an employment law attorney New York. We can help you deal with all such issues.