Human Resources: 1099 at Your Own Risk

Under New York state law, employers must make unemployment insurance contributions for all employees. They must also carry workers’ compensation and short-term disability insurance for all employees. But no such obligations exist for an employer’s independent contractors.

However, if an employer incorrectly treats a worker as an independent contractor and the Department of Labor and the Workers’ Compensation Board discover the mistake, costly penalties result. Workers’ compensation penalties alone can amount to $2,000/ten days that the business did not provide insurance for the worker.

So when is a worker actually an independent contractor? It depends.

To the surprise of many employers, simply paying a worker on an IRS Tax Form 1099 does not make him an independent contractor. Also, calling a worker an “independent contractor,” a “consultant” or a “freelancer” is not determinative, even if the employer and worker sign an agreement reciting such terms.

While the state agencies will consider such tax treatment and contracts relevant to their determination, their focus will be on how much control the employer actually exercises over the worker.

So when is a worker actually an independent contractor?

For example, the agencies will consider whether the worker decides when and where he will perform the services, the manner in which he will do them and whether or not he will provide such services other for other employers. Such factors would point to a finding that he is an independent.

However, if the employer closely controls the worker, by requiring him to report to the employer’s worksite to perform his duties, to do so on set days and times, and prohibits him from working for others, an “employee” determination is more likely.

The agencies also consider when and how the worker is paid, as well as numerous other factors. The analysis is fact specific and can be complex. Employers should review their treatment of workers as independent contractors with counsel. Guessing wrong can be an expensive learning experience.

ellen r. storch, esq.

Ellemn R. Storch is an employment attorney with the firm Kaufman Dolowich Voluck & Gonzo LLP. Contact her at