Independent Contractor v. Employee Misclassifications in New York

In poor economic times, New York businesses are getting away with worker abuse and not paying payroll taxes.  It is no wonder people are getting into debt and filing bankruptcy in record numbers.  Businesses, not just the small companies, try to get away with not having to pay payroll taxes and misclassifying NY workers as independent contractors.

The Internal Revenue Service (IRS) describes New Yorkers like doctors, dentists, lawyers, accountants as independent contractors when they offer services to the general public, but it is risky for a NY business to engage the unemployed individual who cannot find a full time job as an independent contractor.  The person does not have business license, his/her own office, his/her own equipment, and is dependent on the business for livelihood.

When a company lets the person work at its office, gives the person a computer to use, lets the person have an email address with the company, there is less argument that the worker is a contractor, and more argument the business is evading payroll taxes.  When the person gets terminated and cannot find a job, the person may file unemployment and argue s/he was actually an employee because s/he was required to be on the business premises to work, and the business directed the work process not just the results.  The state will investigate, and if it is found the company misclassified the worker as an independent contractor, the business ends up paying payroll taxes and penalties.

Bona fide independent contractors are in business for themselves. They do not hold regular full time jobs, and have multiple clients.  A company cannot demand the person to work on the premises everyday because that would prevent the person from working for other people. It may be ok to ask the person to go to the office once in a while for meetings.  Independent contractors determine if they will do the work themselves, or use one of their employees or subcontractors to complete the job.

A business that classifies a person as a contractor to try the person out is actually try to save money on taxes, and abuse the worker with business costs and less pay.  Independent contractors should not be working full-time at a business, and doing the same work as W-2 employees.  If a company needs a temporary worker, it gets into less tax trouble by engaging a staffing agency, who employs the worker and properly pays the payroll taxes.

Contact an experienced New York tax attorney for advice on business tax reporting.