Understanding the Difference Between Employees and Contractors

In 2017, the New York State Unemployment Board found that Uber drivers were misclassified as independent contractors when they were actually employees and declared that they were entitled to unemployment benefits dating back to January 2014. Uber appealed the decision, but last July, a New York appeals board ruled in favor of the board’s findings.

These recent decisions draw attention to a question that continues to challenge New York employers: is the person doing their marketing, balancing their books, or serving as a virtual assistant to the CEO an independent contractor or employee?

The Economic Realities Test

It doesn’t matter how the person is categorized in their contract. When determining their status, courts and tribunals apply an economic realities test consisting of a set of factors. They include whether the alleged employer:

  • Had the ability to hire and fire the worker
  • Supervised their work
  • Controlled the conditions of employment
  • Dictated the method and rate of payment
  • Maintained employment records

Courts also consider the amount of skill and initiative needed to do the work, the duration of the working relationship, the extent to which the worker’s output is integral to the business, and whether the worker has an opportunity for profit or loss.

Generally, a worker is an employee if the employer:

  • Controls the details of how the work is performed
  • Supplies the materials and equipment used by the worker
  • Pays the worker’s business expenses, such as supplies, insurance, and office rent

A worker is most likely an independent contractor if they:

  • Control all details of the work, such as when and how it is performed
  • Have multiple customers or clients
  • Use their own supplies and equipment

Practical Examples

Here are a couple of examples that illustrate the difference between an employee and an independent contractor.

Example 1

Kelly is a social media manager who works approximately 10 hours a week for XYZ Company. She charges the company an hourly rate and covers her own business expenses, such as the cost of the software and applications used to manage its social media accounts. Kelly, therefore, meets the standard of an independent contractor because she controls the details of her work, pays her own business expenses, and provides social media services to other companies.

Example 2

Jason is a technical writer who works around 20 hours a week for XYZ Company. He writes the content for product manuals and instruction guides. Jason reports to the product development manager and works onsite using company computers and software. Like Kelly, he is paid an hourly rate but he doesn’t work for anyone else. Based on these circumstances, Jason is an employee, not an independent contractor

Contact a Labor Law Attorney

The cost of misclassifying an employee can be extremely high for a company because many statutes will allow a misclassified employee to pursue unpaid wages and benefits going back up to six years. At Rosen Law, LLC, our labor and employment law team will help your business review its workforce, make appropriate classifications, and draw up the employee and contractor agreements that can protect your operations. To schedule a consultation, please contact our office.

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