It is critical that an employer correctly determine whether an individual providing services is an employee or independent contractor. Generally, an employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. In addition, many laws extend protections to employees and do not cover independent contractors, such as laws governing minimum wage, overtime, meal and rest breaks, payment practices and other wage-related issues. Similarly, the Federal and State anti-discrimination laws generally extend only to employees, although some statutes, such as New York City’s Human Rights Law, cover independent contractors.
An employer’s classification of a worker as an employee or independent contractor is not dispositive and failure to properly classify can lead to significant liability. If there is ever any ambiguity as to whether someone is an employee or independent contractor, courts will generally find an employment relationship. This section will provide a general overview of the employee/independent contractor analysis and does not constitute legal advice. Please consult with an attorney on specific issues regarding proper classification of its workforce.