Companies could save by classifying an employee as an independent contractor, but Wall Street and Scarsdale attorney Salvatore Gangemi said small businesses might hit more roadblocks in the process.
“At larger companies, sometimes they employ people within the company to help maintain this independent contractor designation,” said the principal attorney at Gangemi Law Firm P.C. “What is intentional is companies that say, ”˜We can save money here,”™ but what is unintentional is whether the company knows it is violating the law or not.”
One of the easiest ways to trim a firm budget is to misclassify an employee, says Joshua Hawks-Ladds, partner and chairman of the employment and labor section at law firm Pullman & Comley L.L.C. in White Plains, Hartford, Stamford and Bridgeport, Conn.
“If you tell an employee that they will be an independent contractor, the employee has to make a decision whether or not they will challenge that and it”™s tough because it”™s a tough job market,” he said. “They might be enticed to get cash instead of a paycheck with a W-2, but they don”™t realize they will have a fight over workers”™ compensation if they get hurt, Social Security deductions, etc. It puts the employee in a difficult situation.”
Though rare, Hawks-Ladds recalled an instance in a case “when a computer technician was actually on our side.
“He wanted to be a contractor,” he said. “While they (contractors) lose some independence, they gain (as employees) in dollars, benefits and for many of them, legal protections.”
Legal action
Gangemi”™s law firm has been involved in an ongoing case, he says, for six years now and represents drivers for FedEx Ground in New York state.
After a case was resolved in California in 2004, Gangemi said “We had some drivers come to us in New York.” He originally represented drivers out of the Newburgh terminal.
“There are really two issues when dealing with misclassification,” he said of the drivers, who were ranked as independent contractors. “The government ”“ the Department of Labor, Department of Taxation and Finance and the IRS ”“ have one interest and that is to uncover unpaid payroll taxes and unemployment insurance premiums. When there”™s a private lawsuit brought, we basically look at if they”™re (contractors) misclassified and if they”™re really employees, then you (employers) owe them some money. If they”™re requiring them to pay a monthly lease on trucks and all expenses they pay for their deliveries, they”™re being treated as employees and you can”™t expect them to bear the brunt of those expenses.”
”˜All about control”™
Classification trickles down to what is controllable and what is not, said Alan G. Badey, a certified public accountant in White Plains and partner at Citrin Cooperman & Co. L.L.P.
“It”™s really all about control,” he said. “If you have control over the employee: when they”™re coming to work, what they”™re working on, how much they”™re getting paid, it”™s more likely they”™re going to be considered an employee and not an independent contractor.”
Hawks-Ladds last year won several cases on behalf of “cable companies that hire independent contractors to do cable installations.
“Workers can go out and file for unemployment, but that doesn”™t mean they”™re entitled,” he said. “The Department of Labor will hold a hearing and find the facts and apply the law to those facts and there are various tests the DOL runs. The general rule is that if the worker is truly independent, the employer doesn”™t exercise much control over how the employee works.”
According to the U.S. Government Accountability Office, the federal government loses an estimated $3 billion each year in tax revenue as a result of employees misclassified as independent contractors.
The federal fiscal budget of $117 billion included an appropriation of $25 million for a misclassification initiative calling for additional oversight in year 2011.
