How Do Companies Misclassify Employees as Contractors?

The misclassification of employees as independent contractors is a major problem in the New York area. What companies do in order to avoid having to pay workers overtime, benefits, and health insurance, and in order to avoid having to pay payroll taxes as well, what companies do is they present their employees with a contract and say, “You are an independent contractor now. Sign this and you’ll be given a 1099 at the end of the year.

New York courts, as well as the department of labor, are cracking down on this practice, and they look at the economic reality of the relationship between the worker and the company. At the end of the day, the contract is great, but it may mean nothing if the economic reality of the relationship is that the company controls how many hours the worker works, where the worker works, whether the worker has to wear a uniform, whether the worker is provided by the company with the equipment of his or her trade.

All of these factors are part of the so-called economic reality test that the courts and the department of labor look at when making a determination as to whether somebody is an independent contractor or an employee who is required to be paid fair wages, overtime pay, benefits in some cases, as well as whether the employer is required to pay payroll taxes, which many businesses are trying to avoid paying by classifying their employees as independent contractors. This is determined on a case-by-case basis. Just because you were provided with a contract to sign, but you work certain regular hours and do certain regular duties for the company, doesn’t automatically make you an employee. This is something that, if you come for a consultation with me, we will need to discuss. I will you inform you of my professional opinion as to whether you have a claim as an employee rather than as an independent contractor.

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