We recently had a case where NYS concluded that a contractor was an employee despite meeting the criteria for being a contractor because our client “reserved the right” to treat the contractor as an employee.

The contractor was hired as needed to work on projects and was given deadlines but no instructions or specific times to work on the project. The contractor also used his own computer and supplies. Lastly the contractor had other clients. All these facts pointed to contractor status.

This became a problem when one of the contractor’s clients who paid him as an employee ended the contract and the contractor filed for unemployment, leading the state back to our client.

How to prevent this from happening to you? When hiring contractors, only hire companies, not people. It is fairly easy and inexpensive for anyone in NYS to start an LLC. And paying an LLC automatically closes the door on the employee vs contractor issue.

If you find yourself in trouble with NYS over the classification of contractors and need help, let us know. There is a small window to get on the right side with the IRS and the NYS Department of Labor.