Recourse for Employee Misclassification
in New York City
As more employers focus on engaging independent contractors as opposed to additional employees in order to handle their workload, they must avoid the all too common pitfall of misclassifying the human capital they utilize. In many situations it can be economically advantageous to use independent contractors instead of hiring employees because employers can:
- Pay flat fees instead of complying with the federal and state minimum wage and overtime laws that apply to employees;
- Ask contractors to supply their own equipment;
- Not reimburse independent contractors for incurred expenses;
- Avoid the requirement of paying unemployment insurance, social security, temporary disability, or workers compensation; and
- Avoid payroll taxes.
Notwithstanding the potentially significant benefits to employers, there can be severe penalties for misclassifying employers as independent contractors that often outweigh utilizing this system. Depending upon the Department of Labor’s findings as to the employer’s intentions, fines and back payments, owed benefits, and other escalating penalties may be imposed upon the offending business.
Increased Protections for Independent Contractors
Even though independent contractors in New York do not have many of the same entitlements as employees, they still have protections under federal, state, and in some cases city laws. New York City took an additional step when it enacted the Freelance Isn’t Free Act – a non-waivable law applicable to all independent contractors in New York City notwithstanding immigration status. The Act protects every independent contractor’s right to participate in a class action against any hiring party, requires agreement terms between hiring parties and contractors over $800 be in writing, ensures freedom from mandatory arbitration, and protects them from retaliation by hiring parties. Thus, even when properly classifying independent contractors, the hiring party may still be liable for any wrongful conduct towards this class of individuals.
Unintentional vs. Intentional
Misclassification of Employees
When the New York Department of Labor finds unintentional misclassification of employees took place, penalties may be assessed for:
- Every unfiled W2 proven;
- Portions of each misclassified employee’s owed wages plus accrued interest;
- Percentages of each misclassified employee’s Medicare and Social Security contributions; and
- Assessments equal to the employer’s matching contributions for employee benefits.
However, the penalties may be much heavier when an employer is found to have intentionally misclassified employees as independent contractors for purposes of avoiding disability insurance premiums or contributing for payroll taxes. Financial penalties can range up to 20% of all employee wages paid by the employer and 100% of Medicare and Social Security contributions by both employer and employee. Intentional misclassification may also give rise to criminal liability including criminal penalties and even prison time.
Additional Penalties and Consequences
Employers may also be required to compensate a misclassified employee for benefits they did not receive as a result of being improperly deemed an independent contractor. Payments for overtime, break time, paid time off, 401(k) contributions, and healthcare coverage may follow.
Aside from fines, back pay, back benefits, and penalties, employers may also have to deal with class action lawsuits brought by misclassified employees, associated bad publicity, audits, and potentially even punitive damages.
New York Employee Misclassification Lawyers
If you feel like you have been wrongly classified and are missing out on important benefits as an employee, you probably are. At MOWK Law, we are experienced New York employment lawyers that can help rectify the situation in or out of court with your employer. Get in touch with us today to learn more about your legal rights as an employee and how we can help.