Contractor or employee? Still a burning question.

While I generally represent employees in wage and hour lawsuits, I sometimes represent employers. They want my expertise and my perspective as a plaintiff's attorney.  I am often reluctant to do so, because it forecloses them as potential defendants in the future.  Nonetheless, some small companies are my clients and I can help.

These little companies are start ups, or they were started by a single man or woman doing a job who then needed help.  They put someone to work and then pay them like they themselves had been paid.  That is to say with a flat rate, as a contractor.  These new employers often believe that if they pay someone like a contractor, and tell their employees that they are actually contractors, then voila, they are contractors. 

Oy vey.

In fact, the employer and employee can't make that decision between themselves.  An employee can't waive his status as an employee, nor can he release his employer from liability to pay overtime or SSN benefits, or Medicare, or payroll taxes etc.  If the employers are wrong, then they can find themselves facing hefty IRS claims with fines and penalties, and similar claims by state taxing

authorities asking about where all the withholdings are.  In addition, some of these new employers are in businesses that lead to on-the-job injuries.  If the employer was calling their roofing workers contractors, for instance, and not paying workers compensation insurance, and that worker falls and hurts himself, and then wants medical expenses and lost wages, then the employer will suddenly find that saving a few bucks on payroll taxes has ballooned into a major loss.

The question is control.  States often have statutory definitions of employees and contractors.  They usually employ a control test.  Basically stated, if the person paying for the work provides the work, the tools and resources, controls the worker's hours of work and can discharge the worker for any reason, then the worker is controlled and is an employee.  That classification triggers statutory responsibilities and extra costs. But the extra costs are a fraction of what they could be if the employees are misclassified. 

Often the employer and the "contractor" are okay with their relationship.  The employer has no costs other than paying a straight wage to the worker, and the worker pays no taxes or other withholdings up front.  They may even be getting paid cash.  Everybody is happy.  It's when the relationship sours, usually when someone gets fired or hurt, that the wages of sin are collected.  And it can be an unholy amount of wages.

It is much safer, and less costly and dangerous, not to mention ethically superior, to err on the side of employer/employee rather than contractor/sub contractor.  If it's close, make them employees.  If you have any questions about what's close, then email or phone me.  www.langendorflaw.com.    

Glorious blatant misclassification

Employees misclassified as independent contractors present great opportunities for major recoveries of unpaid wages and overtime.  

Undercapitalized or greedy contractors bid jobs low on the basis of low cost labor.  They will bid low because they know they can pay their laborers straight time for their hours, no matter how many, and most of those laborers will be glad to be getting paid.

Some contractors tell their employees that they will be classified as contractors and will not get unemployment insurance or workers comp. or have taxes taken from their pay, or get overtime.  The employees think this is fine.  All they hear is "no taxes." 

Prevailing wage states require contractors working on state funded jobs to pay their employees an inflated wage similar to what the local union members would get for the same work.  It's an incentive to hire union members.  The catch is that independent contractors don't have to receive prevailing wage.  They get paid for the job.  So, unscrupulous subcontractors purposely mis-classify their employees as subcontractors and then deny them the prevailing wages they are due on the grounds that they are not employees and are merely getting paid for the job. 

Even when they think they are right, they are wrong.  Some of these contractors will even issue paychecks from their in-house payroll system, to their "independent contractor" employees, showing pay for say 56 hours at regular pay for a week.  This is printed above the "overtime" line which shows 0 hours and $0.  That's 16 hours of overtime paid at the regular rate.  This violation sets up damages equal to 16 hours at the regular rate.  And that is just for one week.  Think three years of this nonsense, for multiple employees, and add in attorney's fees.  That's right, it gets big fast.

These willful violations of the Federal Fair Labor Standards act lead to three years of trailing liability and liquidated damages, not to mention attorney's fees.  Thanks to Zavala v. Wal Mart Stores, an unpaid overtime case out the federal District Court of New Jersey, liability for unpaid wages can extend to the general contractor or the owner of the job.

This kind of case makes me tingle all over.