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Employees Versus Independent Contractors Explained

It is extremely important for workers to understand the distinction between employees and independent contractors, especially in new industries, like ride-sharing, digital ordering and delivery, and tech startups. This distinction can make a big difference in a company's obligations with regard to wages, benefits, taxes, unemployment insurance, workers' compensation, disability benefits, and other matters.

In some cases, a company may believe that it hired workers as independent contractors, but those workers are actually classified as employees according to the law. Likewise, a worker might believe that she is entitled to the benefits and rights of an employee, but the law is more likely to classify her as an independent contractor.

For example, Uber drivers generally set their own hours, use vehicles that they have invested in for the purpose of their jobs, pay their own expenses, and are free to do other work while driving for Uber. At the same time, Uber engages in behaviors through which it controls the driver's work.

In these cases, it is important to consider that it does not matter if an employer and worker agree to describe the worker as an employee or an independent contractor. Instead, the relationship is dependent upon several factors, according to the New York State Department of Labor. Those factors include "how much supervision, direction, and control" the company exercises over the worker.

What is an Employee Under New York Law?

There is no single factor that classifies a worker as an employee or as an independent contractor. Instead, courts look at a variety of factors. The characteristics of an employer-employee relationship include, but are not limited to:

● Employer chooses when, where, and how the worker performs the services;

● Employer provides the facilities, equipment, tools, and supplies for the worker;

● Employer directly supervises the worker;

● Employer sets the hours or work;

● Employer requires exclusive services, meaning that the worker cannot also work for competitors at the same time;

● Employer requires the worker to be in attendance at meetings or training sessions;

● Employer evaluates the worker's job performance;

● Employer requires worker to seek permission for absences from the job; and

● Employer has the right to hire and fire the worker.

What is an Independent Contractor?

Generally speaking, independent contractors are distinct from employees because they are free from an employer's supervision, direction, and control in the performance of their duties. Independent contractors are generally in business for themselves and offer their services to the public. An independent contractor relationship may exist if some of the following are true:

● Worker has an established business;

● Worker advertises for himself or herself;

● Worker carries her own insurance;

● Worker keeps her own place of business and invests in facilities, equipment, and supplies;

● Worker pays her own expenses;

● Worker assumes the risk for profit or loss;

● Worker sets her own hours and schedule;

● Worker sets or negotiates her rate of pay;

● Worker offers services to other businesses while also working for the employer;

● Worker can refuse work offers; and

● Worker is permitted to hire help at her own discretion.

Some judges have concluded that Uber drivers are independent contractors (as Uber has maintained), while others have ruled that Uber drivers are employees. For instance, an article from Quartz Media reported on a decision in which an administrative law judge ruled that three former Uber drivers were "employees" who were entitled to unemployment insurance benefits.

Workers who are employees under the law, but have been misclassified as independent contractors, may be entitled to damages and benefits. Workers who are properly classified as independent contractors may have additional rights under the New York City Freelance Isn't Free Act. Misclassification of workers can be extremely costly to companies.

If you have questions about whether a worker should be classified as an employee or an independent contractor, or you believe that you have been misclassified, you should discuss your questions with a New York employment law attorney law attorney.

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