What To Know About Independent Contractor Misclassification

By Douglas Lipsky
Partner

Businesses in New York frequently misclassify employees as independent contractors to avoid minimum wage and overtime requirements. If an employer has misclassified you as an independent contractor, it takes an experienced wage-and-hour lawyer to protect your rights.  This article discusses what you need to know about independent contractor misclassification and what you can do about it.

What Is an Independent Contractor?

Independent contractors are typically self-employed, providing goods and services to a business on a contract basis. To meet the definition of “independent contractor,” these workers must be free from supervision, direction, or control of the services they provide.  More precisely, independent contractor status exists when a worker:

  • Has an established business
  • Pays their expenses
  • Sets their schedules
  • Negotiates or sets their pay rate
  • Pays for their equipment, supplies, and facilities

In short, how an employer classified the relationship does not determine independent contractor status: the distinction between independent contractor status and an employer-employee relationship depends on the level of supervision, direction, and control exercised by the employer. 

Understanding the Employer-Employee Relationship

Federal and New York State labor laws don’t specifically define “employer-employee relationship.” However, the courts consider several factors in determining the degree of supervision, direction, and control the employer has over the work performed. An employer-employee relationship may exist when an employer: 

  • Directly supervises the work
  • Sets the work hours
  • Determines the pay rate
  • Requires attendance at meetings/training sessions
  • Evaluates job performance

Notably, the IRS also scrutinizes employee classifications due to the tax revenue implications and considers the following factors when determining a worker’s status: 

  • Behavioral control – If the employer reserves the right to control how tasks are completed, through training for instance, the worker is probably an employee. On the other hand, if a company merely governs the outcome of the task and not the means to achieve it, the worker is more likely to be deemed an independent contractor.
  • Financial control – A worker may be an employee if the employer manages the financial and business aspects of the worker’s duties. This could involve reimbursing expenses or supplying the necessary tools and equipment. 
  • Nature of the relationship  – If the employer provides benefits (e.g. health coverage, vacation pay) or if the work performed is integral to the business operations, the worker may be classified as an employee.

Reasons For Independent Contractor Misclassification

Employers often misclassify employees as independent contractors to avoid paying wages and benefits they are typically required to provide to employees, such as:

  • Minimum wages
  • Overtime pay
  • Unemployment benefits
  • Health insurance
  • Workers’ compensation benefits

Regardless of the reason, misclassifying an employee as an independent contractor violates state and federal employment laws.

My Employer Misclassified Me As An Independent Contractor. What Are My Rights?

Independent contractor misclassification can have a significant impact on your employment rights and benefits. In particular, misclassification can deprive you of essential benefits such as health insurance, overtime pay, minimum wage guarantees, and workers’ compensation in the event of a workplace injury. Furthermore, as an independent contractor, one might be responsible for paying both the employer and employee portions of Social Security and Medicare taxes. 

If you suspect you’ve been misclassified, you have the right to file a complaint with the Department of Labor or your state’s labor agency. In some cases, you might be entitled to back pay for wages owed, including overtime. Additionally, employees who step forward about misclassification are protected from retaliation by their employers. Consult with an employment attorney to assess your specific situation and take the necessary steps to protect your rights.

About the Author
Douglas Lipsky is a co-founding partner of Lipsky Lowe LLP. He has extensive experience in all areas of employment law, including discrimination, sexual harassment, hostile work environment, retaliation, wrongful discharge, breach of contract, unpaid overtime, and unpaid tips. He also represents clients in complex wage and hour claims, including collective actions under the federal Fair Labor Standards Act and class actions under the laws of many different states. If you have questions about this article, contact Douglas today.