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The consequences of misclassifying workers in New York

Entrepreneurs who set up businesses in New York sometimes seek to avoid paying employment-related expenses like payroll taxes and disability insurance premiums by classifying workers as independent contractors rather than employees, but doing this can have serious repercussions. The state has pursued cases of worker misclassification aggressively in the past, and an executive order signed by Gov. Andrew Cuomo in July 2016 established a permanent task force to combat the problem.

In addition to fines and penalties levied by state agencies, misclassifying workers as independent contractors can lead to sanctions from the Internal Revenue Service and the U.S. Department of Labor. Federal and state agencies treat the issue seriously and impose severe penalties because the misclassification of workers denies them much-needed tax revenue, and the costs can quickly spiral out of control when several workers are involved.

Misclassification also denies workers right guaranteed by federal employment laws like the Fair Labor Standards Act and the Family and Medical Leave Act. However, lawmakers in New York City took steps to address this issue in November 2016 by passing the Freelance Isn't Free Act. Under FIFA, the damages awarded to independent contractors who have been treated unfairly can be doubled. The law also calls for independent contractors to be paid no longer than 30 days after completing their assignments, and it requires their duties, obligations and rates of pay to be made clear in writing.

Workers who have been denied rights guaranteed by law often feel powerless, but attorneys with experience in this area may be able to assess an employment situation to determine whether or not people have been misclassified as independent contractors. When it is obvious, attorneys might encourage employers to avoid the possibility of severe official sanctions by settling worker disputes quickly.

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