What Can Happen if You Misclassify an Employee in New York?
Running a business is not easy. On top of daily operations tasks, you also need to ensure your administrative responsibilities are taken care of. When hiring employees, classifying them correctly is crucial if you hope to avoid sanctions and other penalties.
Classifying your employees correctly from the start is crucial to ensure you are in compliance with both state and federal laws. Two of the most common employment law mistakes employers make when classifying employees are misclassifying employees as independent contractors and classifying non-exempt employees as employees on salary.
What if You Misclassify an Employee as an Independent Contractor?
There are many issues that can come up when you mistakenly misclassify an employee as an independent contractor when they should be designated with employee status. We have seen this happen all too often with Uber and Lyft drivers misclassified as independent contractors.
The amount of time your workers spend on the clock and whether you have control over your worker and their work environment will determine whether they should be classified as an independent contractor or an employee. It does not matter whether you are the only person the worker is currently working for. If you provide the workers with equipment or tools or have the authority to discipline them, they may need to be classified as an employee as opposed to an independent contractor.
Misclassifying an employee as an independent contractor could result in serious tax consequences for both you and your workers. If the worker was expecting to have their taxes taken out of their paycheck, so they failed to save for the tax bill, you could be held accountable for the taxes you were responsible for withholding as their employer. Furthermore, if the worker suffers a work-related injury, and you did not purchase Workers’ Compensation insurance coverage for them as required under WCL §2 and 3 per the Workers’ Compensation Board, you could be held accountable for the total value of their damages, including lost income, diminished earning potential, and a variety of economic and non-economic damages.
Additionally, misclassified workers may attempt to bring forward employment law violation complaints for failure to pay overtime, minimum wage law violations per the state of New York, or unpaid wage claims. If the worker was terminated and attempted to file for unemployment, if they were misclassified, you could be expected to compensate them for their economic and non-economic damages, including penalties and interest.
What Happens if You Classify a Non-Exempt Employee As Exempt?
Salaried employees are not entitled to overtime wages if they work more than 40 hours a week or if their salary is greater than $844 per week, according to the U.S. Department of Labor. However, if an employee should have been classified as non-exempt, you could face fines and sanctions from the U.S. Department of Labor and the New York Department of Labor. If the employee files a labor law complaint against you, you could also be expected to pay them backpay and potentially reinstate them.
Here is What to Do if You Have Misclassified An Employee
If you believe you have mistakenly misclassified an employee, it is essential that you correct the matter as soon as possible. You do not want to attempt to hide the mistake or fail to open up to it either. The employee may need to be notified as well to ensure that they can prepare accordingly for any possible tax implications. But before you do anything, consult a legal advocate who can help you rectify the situation and avoid harsh penalties that could arise.