Perhaps you have a photography studio or an indie film production company and think you can just "1099" some production assistants. Or your pop-up restaurant could use some temporary workers. Maybe that music label you've been pouring your sweat into could use an extra hand. So you decide to hire an independent contractor without talking to a lawyer. That might be a big mistake.

In New York, there is no one statute that answers the question "What is an independent contractor?" New York unemployment insurance laws do not define the term independent contractor. Neither do state or city tax laws, New York Workers' Compensation Law and disability laws, or New York Human Rights Law (HRL).

New York independent contractors are not generally covered by Workers' Compensation. However, there are exceptions, and, for example, professional musicians or construction workers ("New York State Construction Industry Fair Play Act") may be able to make Workers' Compensation claims even if they have been classified as independent contractors in other areas of law.

The laws of New York do find guidance in the federal government's approach to classification of independent contractors. While New York's tax laws do not cover independent contractors, the IRS has stated, "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done." In fact, the IRS provides a pretty thorough checklist for tax purposes called: "Independent (Self-Employed) or Employee?" The U.S. Department of Labor has also issued a "Fact Sheet" that provides Federal Labor Standards Act guidance on classification, and, New York's approach to classification when it comes to wage and hours very much mirrors the FLSA "economic realities test." However, classification for the federal government and classification for New York might be two very different matters, because New York "common law" (also known as "case law") governs New York classification of employees and contractors.

Case law in New York--the synthesis and acceptance of rules from important adjudicated lawsuits--dictates that if the hiring entity or person exercises control over the means of producing the results of a person's work, that worker is an employee and NOT an independent contractor. Control over the means of production is the most important determinant of whether a worker has been misclassified as an independent contractor rather than employee. However, even when the means of production are not necessarily controlled by the company, if there is substantial control in other areas of practice, certain "professional" workers, such as professional graphic artists, photographers, lawyers, doctors, may STILL be considered employees in a court of law!

The consequences of misclassification can be financially catastrophic for a small company. Before making your first hire, you ought to consult an attorney, and you would be wise to familiarize yourself with laws affecting your specific area of business.

Prywes Greenberg, PC

Prywes Greenberg, PC

Insights and Opinions for the 21st Century

Prywes Greenberg, PC

Before You Hire an Independent Contractor for your Startup Small Business...