by Alexa Zelmanowicz
Misclassification of Independent Contractors
The 2014 Hofstra Labor & Employment Law Journal annual Symposium focused on the misclassification of workers. One of the most common misclassifications is the misclassification of employees as independent workers. A panel of three highly respected and successful attorneys took the stage to discuss how and why misclassifying puts both workers and the public at a disadvantage.[1] Ms. Terri Gerstein, Mr. Jeffrey M. Shlossberg and Mr. Christopher A. Nicolino led the panel on Misclassifying Independent Contractors.
The cost of business is cheaper for an employer when workers are classified as independent contractors.[2] An employer does not have to pay FICA, unemployment insurance, OSLA, paid sick leave, health insurance, and the like, for independent contractors.[3] The unfortunate truth is that often employers misclassify a worker, in bad faith, to save money on taxes and expenses.[4] The obvious disadvantage for workers is that they do not receive entitled benefits.[5] A worker may be operating under the assumption that he or she is, in fact, an employee and may reasonably rely on federally mandated insurances.[6] The panel highlighted the most harmful effect purposeful misclassification has on the public.[7] When a business does not consider its workers as employees, the business is able to save money on employee spending and taxes.[8] These practices result in honest business owners having a competitive disadvantage against bad-faith competitors.[9] A disadvantage for the public is taxes that should be paid for unemployment insurance are not.[10] This state level problem results in good-faith citizens having to make up the difference of the millions in necessary unemployment taxes.[11]
The test for determining classification primarily focuses on “Direction and Control” by the employer on the employee.[12] Examples of direction and control are: 1) employer creates schedule, 2) employer supplies tools, 3) payment methods, such as hourly pay, and 4) the work that is being performed by the worker is directly related to the subject matter of the business.[13] When an employer creates the schedule, the scales tip towards employee status.[14] The same is true when the employer supplies tools and pays hourly.[15] Mr. Schlossberg stated that it is particularly strong evidence of employee status when the worker is performing duties and creating goods that are essentially the subject matter of the business. [16]
Several states are cracking down on the practice of misclassifying workers.[17] In some states, if an employer does not have insurance for someone it should, the employer is charged $2000 for each ten-day period.[18] In Florida, to avoid under the table payments, every time a business cashes a large check, the Attorney General is alerted.[19] There is a particular focus on the construction industry when it comes state mandated regulations and fines. New York and California recently enacted legislation that gives a presumption of employee over independent contractor in for construction disputes.[20] All three-panel members spoke highly of states that are becoming leaders in a new frontier for protecting employees as well as the public. The increase in attention to misclassification has the panel members’ optimistic towards the future.
[1] Terri Gerstein, Jeffrey M. Shlossberg and Christopher A. Nicolino led the panel on Misclassifying Independent Contractors.
[2] Terri Gerstein, Labor Bureau Chief, Office of N.Y. State Att’y General, Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Terri Gerstein, Labor Bureau Chief, Office of N.Y. State Attorney General, Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014); Jeffrey M. Schlossberg, Counsel, Jackson Lewis P.C., Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[8] Gerstein, supra note 2.
[9] Id.
[10] Terri Gerstein, Labor Bureau Chief, Office of N.Y. State Attorney General, Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014); Jeffrey M. Schlossberg, Counsel, Jackson Lewis P.C., Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[11] Christopher A. Nicolino, Deputy Bureau Chief, Labor, Ins. & Revenue Crimes Bureau, Office of the Suffolk County Dist. Att’y, Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[12] Jeffrey M. Schlossberg, Counsel, Jackson Lewis P.C., Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Christopher A. Nicolino, Deputy Bureau Chief, Labor, Ins. & Revenue Crimes Bureau, Office of the Suffolk County Dist. Att’y, Speaker at the Hofstra Labor & Employment Law Journal Symposium on the Misclassification of Workers (Oct. 24, 2014).
[18] Id.
[19] Id. (explaining that this is done to make sure workers are not being paid under the table
[20] Id.
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