Worker classifications – are you properly classifying your employees and independent contractors?



by Susan Gross Sholinsky, EpsteinBeckerGreen

In light of a number of aggressive tactics being pursued by the federal and many
state governments to challenge companies’ designations of workers as
“independent contractors” rather than “employees,” you should ensure that you are
making such designations properly. State governments have been using various
methods for enforcing proper classification of workers. For example, several states
(particularly New York, which has created a multi-regulatory agency joint task force)
have initiated both random and targeted audits of apparent worker misclassification.

Misclassification can be costly, so companies are urged to review their worker classifications at regular intervals.

We have seen unemployment insurance claims brought not only by contractors arguing that they
should have been classified as employees (and are, therefore, eligible for unemployment
insurance), but also by the State of New York on behalf of “all those similarly situated” to the

In other words, New York employers may find themselves faced not with one
unemployment insurance proceeding based on an allegedly misclassified contractor, but two –
the second being brought by the New York State Department of Labor (“NYSDOL”) on behalf of
other workers who are allegedly “similarly situated” to the worker claiming he/she has been

Whichever way you may be targeted, you should be aware that both the federal and state
governments have been focusing on worker misclassification – many state governments have
established task forces to address the issue, as noted above with respect to New York State.

The federal government has also proposed several new laws and rules pertaining to this issue.
Governments generally have a dual purpose: (i) to “protect” workers, and (ii) to recoup
employment taxes and unemployment insurance premiums to increase government coffers.

So what should you do?

As you may be aware, several legal standards and tests are used by the courts and applicable administrative bodies to determine whether a worker is actually an
“employee” (and not a contractor). However, the level of control that a company has over the
worker regarding the means and manner of the work, rather than just an interest in the finished
product, will generally be the best predictor of whether he or she will be deemed an employee, if

For example:

  • Is the worker required to work on the company’s premises?
  • Must the worker perform services during the company’s business hours?
  • Does the worker use the company’s equipment and have a company e-mail address, phone extension, or business card?
  • Can the term of the relationship be terminated immediately for poor performance or other reasons?

If the answers to the questions above are “yes,” then the worker may be deemed an employee,
if challenged.

On the other hand, if many of the answers to the questions below are “yes,” the
worker probably has been properly classified as a contractor:

  • Is the worker free to perform services for other companies during the term of the relationship with the company?
  • Does he/she use his/her own equipment (laptop, computer software, tools, etc.)?
  • Does the contractor work on his/her own schedule?
  • Is the work performed off the company’s premises?
  • Does he/she advertise his/her services to others (whether on the Internet, in the phone book, or otherwise)?

This document has been provided for informational purposes only and is not intended
and should not be construed to constitute legal advice. Please consult your attorneys in
connection with any fact-specific situation under federal law and the applicable state or
local laws that may impose additional obligations on you and your company. © 2011
Epstein Becker & Green, P.C.

© Copyright 2006-2011 Globe Business Publishing Ltd | Disclaimer | Privacy policy
Worker classifications – are you properly classifying your…

2 thoughts on “Worker classifications – are you properly classifying your employees and independent contractors?

  1. This is a great article exploring these issues. For another spin on these factors please see my article Employee or Independent Contractor? at the following link For those employers who want to come forward to clean up their chronic employment tax problems at a very cheap rate please see my article that details and a discusses this problem entitled Employers Playing Tax Games with Workers: IRS Offers Way to Come Clean@ Hope this helps your readers to shed more light on this problem and the solution being offered by the IRS

  2. i have been missclassified and have been paying my own taxes for almost 4 years. I brought up a harrassment suit and now they know that I have been missclassified. Will this company have to pay me back for the taxes I have paid? Do I need to file a claim or fill out a S=8 form or do I hire a lawyer?

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