What Is Worker Classification?
Worker classification is when an employer decides how to categorize a worker: either as an employee or an independent contractor. Improperly classifying a worker can have significant consequences.
The Importance of Employee Classification
The age-old question of whether to classify your work as an employee or an independent contractor is something companies grapple with every day, and it is an important decision to make because, as an employer or service recipient, your rights and obligations to your workers change depending on their classification.
Specifically, employees have rights when they are terminated and may be able to collect unemployment insurance benefits from the New York Department of Labor (NYDOL), while independent contracts have no such rights. Accordingly, for employees, there are contributions employers are required to make to New York State for legal compliance.
Employers can also face substantial financial penalties and legal liabilities for misclassifying employees. The NYDOL impose fines and penalties for such violations.
Independent Contractor vs. Employee Checklist
The State of New York has a detailed test to determine what kind of worker an individual is for unemployment insurance law purposes: an employee or an independent contractor. In New York, independent contractors perform services free of the following:
- Supervision.
- Direction.
- Control.
The common law test is a facts and circumstances test that requires the balancing of different factors. The factors considered include:
- whether a worker makes her services available to the public/other service recipients;
- whether the service recipient limited the worker’s ability to engage in work for other service recipients in any way;
- whether the service recipient required notice of or for the worker to obtain permission to provide services to another service recipient;
- whether the service recipients had any non-compete agreement with the worker;
- whether the worker was required to provide prior notice of any absences;
- whether a worker is in business for herself;
- whether the worker maintains her own establishment to provide the type of services she provides to the service recipient;
- whether the worker offers services to the public;
- whether the worker advertises her services in public;
- whether the worker has a commercial telephone number listing;
- whether the worker carries business insurance;
- whether full-time work is required by the service recipient;
- whether the service recipient sets her own hours;
- whether the service recipient works specific, set hours;
- whether the worker has the freedom to work her own hours. Ms. Montes was not required to work full-time;
- whether the service recipient dictated where the services were to be performed;
- whether there is a contract for the worker’s performance of services;
- whether the service recipient reserved the right to terminate the worker’s services on short notice;
- whether the worker was required to attend meetings;
- whether the worker received any training;
- whether the service recipient dictated how the services were to be performed;
- whether the service recipient directly supervises the job;
- whether the services recipient requires the worker to provide oral or written reports;
- whether the service recipient provided facilities to the worker;
- whether the service recipient provides equipment, tools, or supplies to the worker;
- whether the service recipient sets the rate of pay;
- what the form of compensation is;
- whether the service recipient reimburses or provides an allowance for business or travel expenses;
- whether the service recipient provides fringe benefits for the worker;
- whether the services provided by the worker are an integral part of the service recipient’s business;
- whether the worker furnishes business cards or other identification of the worker as a representative of the service recipient;
- whether the worker has business cards, stationery, or billheads; and
- whether the worker had any risk of profit or loss.
Classifying Employees Correctly
While the list of factors considered is admittedly lengthy, it is important to carefully classify your worker to avoid responsibility for backpay of contributions and/or fines. One way to ensure you have carefully decided a worker’s status is to have a clear, detailed employment agreement or independent contractor agreement that spells out the following:
- The services the worker will be providing.
- The terms under which the services will be provided
- The responsibilities and risks associated with the role and task completion.
- The details on the compensation method.
- Clarification of the understanding between the parties at the outset of the working relationship.
Sometimes after the agreement is drafted, it becomes clear that the worker should be either an employee or independent contractor.
Classifying Employees: Talk with a Business Law Attorney
Even sitting down with an attorney for a paid consultation to discuss the vision you have for your working relationship with your workers can help you determine whether you have an employee or an independent contractor. It can also be an opportunity to discuss with an attorney how to structure your working relationship with your employee or independent contractor so that the relationship is more likely to satisfy either the test for being an employee or independent contractor.
It is important to note that these tests are fully subjective– a court or administrative law judge would be weighing the factors above to determine what level of supervision, direction, and control exist and making a subjective determination about whether they believe the worker is a contractor or employee. Each case is unique and dealt with accordingly.
An attorney can also help you with framing and accurately characterizing your working relationship with your worker after the NYDOL Unemployment Insurance Division contacts you. They may reach out to request a hearing or ask you to complete a questionnaire. It is all too common that an employer/service recipient asked to explain their working relationship with their employee or independent contractor can mistakenly misrepresent the workers’ role.
An experienced attorney can also help you identify what kinds of relevant information and documents need to be provided in the course of the NYDOL investigation and hearing process so that they can make an informed determination about your worker’s proper classification.
Reach Out to Our Business Law Attorney
We at Suri Law are here for all of your employment law needs and can help you with everything from consulting about worker classification to drafting employment and independent contractor agreements to representing you throughout the NYDOL process.
Schedule an initial consultation today. Contact us at (212) 444-8244.