It is vital that you understand the distinction between independent contractors and employees. This affects you and your business.
You may genuinely believe that you have hired people to perform services for you as independent contractors. You may discover that by law they are considered employees and that you are liable for unemployment insurance contributions and interest.
Whether the relationship is one of employer-employee will depend on several factors. These include how much supervision, direction and control you have over the services.
The courts have found that no single factor or group of factors conclusively define an employer-employee relationship. Rather, all factors are reviewed to determine the degree of supervision, direction and control exercised over the services. Generally, an employer controls what will be done, i.e. the manner, means, and results.
An employer-employee relationship may exist if you:
How an individual is compensated is another indicator of worker status. Employees typically are paid a salary, an hourly rate of pay or a draw against future commissions with no requirement for repayment of unearned commissions. Employees may also receive certain fringe benefits, including an allowance or reimbursement for business or travel expenses.
The nature of the services performed is also key to deciding if a worker is an employee or an independent contractor.
Unskilled or casual workers are usually employees because their labor is often supervised. However, even professionals such as doctors and lawyers, who have much freedom to perform their duties, may be employees if they are subject to significant control.
The courts have also found that workers may be employees and that an employment relationship may exist if the employer controls important aspects of the services performed, other than results and means.
For example, a referral agency usually does not directly supervise the individuals it refers for assignments. It could be their employer, however, if it controls such important aspects of the services as:
Independent contractors are free from:
They are in business for themselves, offering their services to the general public.
Signs of independent contractor status include a person who:
An employer-employee relationship may exist regardless of how the hiring party describes it. For example, if you give a worker a 1099 Form rather than a W-2 Form, they may still be an employee. Persons who work for you may qualify as employees under the law, even if, for example:
Under the Unemployment Insurance Law, an agreement by employees to waive their rights under the law is not valid.
Remember that the real distinction between the employer-employee relationship and the independent contractor relationship depends primarily on the level of supervision, direction and control exercised by the person engaging the services. It is not defined by what the relationship is called by the participants.
Whether the relationship is one of employer-employee will depend on several factors.
The law also contains a twelve-part test for determining when a sole proprietor, partnership, corporation, or other entity will be considered a separate business entity from the contractor for whom it is providing a service. If an entity meets all of the 12 criteria, it will not be considered an employee of the contractor but will instead be a separate business that is itself subject to the new law regarding its own employees.
The statute excludes or covers certain types of services, regardless of the degree of direction and control.
For details on independent contractors, please see our Independent Contractors publication.
If you believe that some of your workers are independent contractors, ask for a formal determination by writing to the address below. Include a copy of any contract and details of your relationship.
If you have any other questions call the Liability and Determination Section at 518-457-2635.New York State Department of Labor
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