HR: Classifying Workers As Independent Contractors
The State of New York recently enacted the NY State Construction Industry Fair Play Act. "The Fair Play Act" addresses the status of an employee vs an independent contractor in the construction industry. Under the new law- a worker is considered a W-2 employee unless they meet certain criteria. It also imposes significant monetary and criminal penalties for employers who violate the law. In addition to the legislation in the construction industry, other industries known to be major offenders of misclassification are believed to be targeted next. (Janitorial, home health care, childcare, transportation, warehousing, meat & poultry processing and other professional & personal services)
NY is just one of many states who have recently taken an aggressive stance against misclassification of employees as independent contractors.(CO, DE, IL, MD and MA have also enacted legislation) As misclassification prevents states from collecting millions of dollars in state tax revenue each year- unemployment, income & payroll taxes, along with workers compensation are all negatively affected- many other states have begun exploring misclassification enforcement to recoup lost revenue as well.
On the employer side, independent contractors can provide viable solutions. For businesses that have fluctuating work demands, can’t afford to maintain a work force comprised of year round employees or require personnel with specialized skills and knowledge for short term projects, classifying workers as independent contractors can create significant cost savings.
Although classifying workers as independent contractors can provide cost saving solutions for businesses--- misclassifying employees whether done intentionally or in good faith can result in major fines and penalties for employers. Reviewing your worker classification is always an important practice for employers, but now may be the time for employers to take a very close look at their classifications to confirm they are compliant with state standards and laws.