Independent Contractor vs. Employee in NY

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Disclaimer

This guide addresses some of the criteria for independent contractor classification and some of the responsibilities of small businesses in New York State and City who hire individuals to provide services for the business. It does not include every consideration and responsibility, and there are many more resources on these topics. This guide does not cover all the related laws and regulations. This guide was last updated on October 9, 2023 and some of the information may have since changed. The information in this guide is not legal advice and is not intended to be relied upon as legal advice. If you have a legal issue, you should not rely on this information and instead speak to an attorney.

This guide includes links to third party websites for access to information and resources. We do not control these websites. We have not reviewed all the content that appears on these websites, and are not responsible for the legality, accuracy, or appropriateness of their content. Content on these websites may change at any time, including after we decide to share their links on this site. For legal advice about your specific situation, you should consult with a qualified attorney.

Introduction

The determination of whether an individual is an employee or an independent contractor of a business can have significant ramifications on legal risks and liability, civil rights, taxes, benefits like unemployment insurance, and more. Some of the attributes of the relationship to consider are whether the individual performs their work without direction or control from the business (in the contract and in reality), performs the services in their own name or the business’s name, offers and delivers their services to the general public or business community regularly and free of the business’s input, and pays for their own licenses, supplies, and administrative costs.

Business owners are encouraged to speak with an experienced attorney to assess whether individuals should be treated as employees or independent contractors.

 Determining if Someone is an Employee or an Independent Contractor

No single factor is determinative. Courts consider many factors to determine the degree of supervision, direction, and control over the manner, means and results of the work.  Courts have considered:

• When, where and how the work is performed;

• Whether prior permission required for absences;

• Who provides the facilities, equipment, tools, and supplies;

• Whether someone is providing direct supervision over the work;

• Who sets hours and rate of pay;

• Can the worker provide services to others or is it exclusive to the business;

• Is attendance required at company meetings or trainings;

• How is the worker compensated (salary, hourly rate, draw against future commissions, etc.); and

• Does the worker get fringe benefits.

Hallmarks of Independent Contractor Status

Independent contractors offer their own services as a business to the general public without direct supervision or control in how they perform their duties. Some factors to consider are whether the worker:

• has an established business entity or DBA;

• pays their own expenses and assumes risk of profit or loss;

• carries their own applicable insurances;

• offers services to several businesses simultaneously; and

• sets and negotiates their own schedule and rate of pay.

Penalties for Misclassification

Misclassification of an employee as an independent contractor may result in:

• a lawsuit for damages, including unpaid wages;

• liability for back taxes with interest and penalties by the IRS and applicable state agencies;

• penalties for lack of coverage for Workers Compensation Benefits, Unemployment Insurance, Disability, and Paid Family Leave;

• additional liquidated damages of up to double the value of the contract plus the worker’s attorneys’ fees (NYC’s Freelance Isn’t Free Act);

• Penalties for any retaliation or harassment of independent contractor for exercising their rights; and

• NYC may bring an action against an employer exhibiting “a pattern or practice of violations” of the Freelance Isn’t Free Act for civil penalties up to $25,000.

RESPONSIBILITIES OF SMALL BUSINESSES WITH INDEPENDENT CONTRACTORS

Wages

Employers in New York are required to pay employees the applicable State or City minimum wage. On the other hand, independent contractors are not entitled by law to overtime, minimum wage, or most benefits.  However, the Freelance Isn’t Free Act imposes the following obligations on employers and businesses within NYC:

1)    Any contract with an independent contractor for work exceeding $800 in any 120-day period must be in writing.

2)    Independent contractors must be paid within 30 days of completion of the work, unless otherwise specified in the contract.

3)    Non-payment and partial payment to an independent contractor are grounds for a legal claim including double damages and attorneys’ fees.

Taxes

Employers typically are not required to withhold taxes for independent contractors.  However, effective January 1, 2022, New York employers must report to the New York State Department of Taxation and Finance any independent contractor arrangement in excess of $2,500. Visit the NYS New Hire Online Reporting Center website for more information.

Sick Pay and Sick Leave

New York employers are not required by law to provide sick pay or sick leave to independent contractors.

Pay Transparency in NYC

Effective November 1, 2022, NYC employers with 4+ employees must include a good faith pay range in each job advertisement, including for independent contractors.

Workers’ Compensation and Disability

New York employers are generally not required to provide workers’ compensation or disability coverage to independent contractors. Businesses should consider the Workers’ Compensation Board’s criteria for independent contractor designation.

Immigration Status/Work Authorization

While the federal government does not require employers to obtain a Form I-9 (Employment Eligibility Verification) for independent contractors, federal law prohibits knowingly contracting with an independent contractor without authorization to work in the US.

Sexual Harassment Policies and Trainings, Discrimination, and Accommodations

For New York State employers outside of New York City, the New York State Human Rights Law extends to independent contractors protection from harassment, discrimination, and retaliation.  Employers must adopt a sexual harassment prevention policy and training that meet or exceed the law’s minimum standards. You can find more information on New York State’s Combatting Sexual Harassment in the Workplace site.  

For NYC employers, the City’s Human Rights Law extended protections to independent contractors effective January 11, 2020.  Protections include:

• Sexual harassment training must be offered where employer has 15+ employees and the independent contractor works more than 80 hours during on at least 90 days during the calendar year.

• Freedom from discrimination and retaliation, and a guaranty of reasonable accommodations for: disabilities, pregnancy or lactation, religious observance, or status as victim of domestic violence, sexual offenses, or stalking.

The New York City Commission on Human Rights has developed an online training that satisfies both the New York State and New York City sexual harassment prevention training requirements that is available here.

Federal, state, and local laws protect most workers from discrimination, bias, and/or harassment based on certain protected characteristics. New York State law protects most workers against discrimination or harassment based on their age, race, creed, color, national origin, sexual orientation, gender identity or expression, military status, sex, disability, predisposing genetic characteristics, familial status, marital status, status as a victim of domestic violence, arrest record or conviction record, or sincerely held practice of religion.

New York City provides protection to all the above-listed characteristics as well as on the basis of arrest or conviction record, caregiver, credit history, pre-employment marijuana testing, unemployment status, sexual and reproductive health decisions, salary history, and status as a victim of domestic violence, stalking, and sex offenses.

Reasonable Accommodations

Federal, State, and local laws require most employers to provide certain reasonable accommodations to allow employees to perform their job.

Health and Safety in the Workplace

Federal, State, and local laws requiring employers to provide a safe workplace applies to both employees and independent contractors. The US Department of Labor Occupational Safety and Health Administration (OSHA) has information about their requirements on their website here and in their Small Business Safety and Health Handbook.
In New York the Department of Labor, the Department of Health and local health departments have additional requirements for workplace safety. You can find more information on their websites here: Department of Labor and Department of Health (includes links to local health departments).

Consult a Small Business Attorney

 An experienced attorney can determine your business’s specific responsibilities and advise you about how to efficiently meet them. Contact Pepitone Law for a consultation.

You can also find more information in our guide, “Responsibilities of New York Employers.”