Bracken & Margolin, LLP Attorneys at Law. legal briefs

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1 April, 2009 Volume 24 News from Bracken & Margolin, LLP Attorneys at Law legal briefs Independent Contractor or Employee? the difference can make a difference Not all of a business workers are employees. Some may be independent contractors. Whether your worker is an employee or independent contractor is a critical determination for your business. Misclassification, or lack of documentation, can have serious, unintended consequences. Inside this issue Independent Contractor or Employee? the difference can make a difference (page 1-2) Guarding Against FLSA Overtime Suits: What Every Employer Needs to Know (page 3-4) The Problem Misclassification of an employee as an independent contractor can create various potential liabilities for your business. Your business could be liable for withholding taxes (such as income, unemployment, social security and medicare taxes) with interest and penalties. Misclassification can also create liabilities under minimum wage, overtime laws and labor laws that require you to provide meal periods and rest breaks. Your business could also incur liability for worker s compensation premiums or even for damages from injuries to workers who are found to be employees. Misclassified workers themselves can commence private lawsuits to recover the value of wages and benefits and your business can be held liable for torts, which are injuries to persons or property, caused by workers who are found to be employees instead of independent contractors. Additionally, your business could incur legal fees defending the allegation in a lawsuit that an independent contractor is an employee, even if ultimately there is no liability for the injury. The Determination There is no bright-line test to determine whether a worker is an independent contractor as opposed to an employee. Instead, courts and taxing authorities look at a series of factors as they apply to each particular situation. The most important factor is the degree of control your business has over the method and means by which the work is to be done. The more control you exercise over a worker, about when, where and how a particular task is to be accomplished, the more likely it is that you have an employee and not an independent contractor. Other factors to consider include whether the worker furnishes continued on page 2

2 The more control you exercise over a worker, about when, where and how a particular task is to be accomplished, the more likely it is that you have an employee and not an independent contractor. tools and equipment, whether taxes are withheld from payments to the worker, and whether benefits (like insurance, pension plans, paid vacation, sick days, and disability insurance) are provided to the worker. Still more factors include the existence of an ongoing evaluation system for the worker s performance, which would indicate the existence of an employer-employee relationship; whether the relationship is expected to last for an unspecified period of time; whether a written contract exists between your business and the worker; and whether the worker is free to pursue other business ventures. Remember, factors that are relevant in one situation may not be relevant in another. As a result, it is important to look at the entire relationship between your business and the worker in making this determination. Remember that your business needs to keep more records where the contractor has little, if any, documentation of a separate, ongoing business. Do not provide contractors with the same benefits that are available to employees, such as health or retirement benefits, and be judicious when providing contractors with indicia of employment in your business. Providing an independent contractor with business cards, an employee handbook or a company address can create evidence of an employment relationship if the worker s status as an independent contractor is not properly documented. Whether or not your business has a written contract with the worker, be sure to record the contractor s tax ID number, even if it is only a social security number. Get invoices first before paying an independent contractor, and issue 1099 statements to all contractors at year s end. Do the Little Things The minutiae of maintaining files and properly documenting a worker s status can get lost in the bustle of every-day responsibilities. Make the best effort you can because not doing so may impact your bottom line. n by Gerard J. McCreight What to Do You can protect your business by taking some simple precautions and keeping proper records. Try to record a determination in your business records as to whether a worker is an independent contractor or employee and list the factors on which you are relying. Use written contracts with independent contractors and avoid clauses that inhibit the contractor from pursuing other business opportunities. Do not provide contractors with the same benefits that are available to employees, such as health or retirement benefits, and be judicious when providing contractors with indicia of employment in your business. 2 legal briefs

3 Guarding Against FLSA Overtime Suits: What Every Employer Needs to Know When it comes to wages and hours, New York s employers are governed by not only the state s Labor Law, but also the Federal Fair Labor Standards Act or FLSA, Title 29 U.S.C. 201 et seq. The major provisions of the FLSA concern minimum wage, overtime pay, and employment-related record keeping. If you are an employer with gross receipts exceeding $500,000, you must adhere to the FLSA or risk civil and criminal penalties. An employee who believes he has been the victim of FLSA wage and hour violations is permitted to commence a class action on behalf of himself and all others similarly situated. Layoffs and a languid economy have caused employees to scrutinize their employers conduct and to file these class action lawsuits at the rate of at least one per day in the New York courts (they may be filed in either state or federal court). As a result, these courts have recently experienced an unprecedented deluge of wage and hour class actions. The potential for such lawsuits should concern all covered employers, whether they operate in corporate form or not. Employees may Layoffs and a languid economy have caused employees to scrutinize their employers conduct and to file these class action lawsuits at the rate of at least one per day in the New York courts... seek back pay, and liquidated damages at the rate of two times the back pay amount. There is the potential for personal liability as well, since any individual who has authority over the employee s work schedule is personally liable for all overtime wages. Lawsuits may be commenced within two years of non-willful violations, and three years of willful violations. To ward off these potential claims, employers should follow the statutory requirements even if they seem burdensome. The FLSA record keeping requirements mandate that an employer maintain and keep records for three years. For each employee, an employer is required to maintain the name, date of birth, social security number, sex, and home address, as well as the day and time on which the work week begins, the rate of the employee s pay, basis of pay, total hours In a typical scenario, a disgruntled employee will contend that his employer worked him off the clock without pay or miscalculated the rate of pay for either overtime or a salaried workweek. worked, the amount of regular and overtime pay, the dates of wage payments and the pay period covered, and the company s sales and purchase records for purposes of determining whether it is an enterprise with an annual business volume of $500,000. If requested by the U.S. Department of Labor, these records must be made available for inspection within 72 hours. Overtime disputes are one of the most common reasons for wage and hour suits. In a typical scenario, a disgruntled employee will contend that his employer worked him off the clock without pay or miscalculated the rate of pay for either overtime or a salaried workweek. The potential for class actions means that one unhappy employee can bring an action to force the employer to pay out back wages and liquidated damages for employees who never complained, along with the prevailing employees attorney s fees. Under the FLSA, all non-exempt employees are entitled to one and a half times their regular rate of pay for each hour worked in excess of forty in a particular workweek. There are only two classes of employees for whom an employer need not furnish overtime wages: excluded workers and exempt employees. Excluded workers include employees of movie theaters and some agricultural workers, along with those working in industries covered by other federal regulations, such as certain railroad workers and truck drivers. Businesses employing workers in excluded fields may be bound by state law or other federal labor requirements, but they need not provide workers with overtime wages continued on page 4 legal briefs 3

4 continued from page 3 as mandated by the FLSA. Exempt employees are salaried workers earning at least $455 per week, who are employed in one of a limited number of professions. Under regulations issued by the U.S. Secretary of Labor, a salaried employee is one who regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount, constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. The salaried employee exception, however, has been a source of confusion for some employers, who mistakenly believe that any salaried employee is not entitled to overtime. Only employees holding administrative or executive positions, or creative or computer professionals are exempt under the FLSA. New York labor law differs from the FLSA in several key respects, but firm news The Firm is pleased to announce that Patricia M. Meisenheimer has been selected by Long Island Business News as a member of the 2009 Long Island s Top 50 Most Influential Women in Business. The selection was made by a panel of business and community leaders based on her biographical information, professional accomplishments, impact on the local economy and leadership in the women s business world. Super Lawyers, Corporate Counsel Edition 2009, included John P. Bracken on its list of Super Lawyers in the State of New York. The selection process is based upon a multi-step evaluation process that incorporates peer recognition and professional achievement. Dear Reader: We welcome your thoughts or comments about the articles contained in this newsletter, or subjects you would like to see in future editions. Please [email protected] and indicate Newsletter in the subject line. Thank you. governs many of the same areas of employer conduct. Despite variations between the requirements of these two statutes, employees often bring federal and state law claims in the same suit. We will provide an overview New York labor law in a future edition of this newsletter. n by: Kristen L. Ryan This publication is intended to provide accurate information on the subject matter covered. It is provided with the understanding that Legal Briefs is not rendering a legal service, and we assume no liability whatsoever in connection with its use. Copyright 2009 Bracken & Margolin, LLP Attorneys at Law printed on recycled paper April, 2009 Volume 25 Bracken & Margolin, LLP Attorneys at Law 0ne Suffolk Square Suite 300 Islandia, NY 11749

5 Firm Profile Bracken & Margolin, LLP was founded in 1986, and has been What engaged Happened? in the general practice of law, with an emphasis The post- on litigation 9/11 economy and business was practice. largely driven Our litigation by practice borrowing embraces fueled a wide by range of business disputes, personal injury and products historically low interest rates. These liability claims, labor law issues, civil rights claims and contested low interest estate rates matters. allowed The firm lenders has periodically to been send engaged money as trial flooding counsel into the the profession. local The broad housing scope of market our litigation making practice loans gives available balanced to large perspective numbers on of how people to use who litigation us a wide and effectively refinanced to pursue and a purchased particular objective, houses with including settling a case to advantage, as well as successfully litigating a case to its conclusion. abandon, all with the belief that housing business prices would practice continue encompasses to appreciate a wide range of Our transactions and would and never counseling, decline. with an emphasis on real estate, including The loans leases, were acquisitions originated and by large mortgages, municipal banks law, with labor household relations and names employment such as regulations, corporate counseling, the sale or purchase of Citibank and Chase. There were also assets or stock, the formation of partnerships, corporations lenders and limited whose liability names companies, are now joint synonymous arising with within the down-turn specific industries, the tax ventures, arbitrations certiorari local market and condemnation, such as American health Home law, probate and administration Mortgage and of estates, wills, trusts and estate planning. New Century Mortgage Clients of the firm range from individuals and Corporation. These latter banks were newly-formed companies to established corporations, partnerships, known as title sub-prime companies, lenders. investment advisors, employee Sub-prime associations, lenders homeowner were called associations, that municipalities because they and professionals. made loans to borrowers with lower credit scores, often without documentation of income sources. These loans, especially Partners for purchases, usually financed 100 percent or more of John P. Bracken the purchase price, allowing buyers to Linda U. Margolin use the equity in the house to finance the entire cost of acquisition, including Associates closing costs. As a result, there was little to no room Vincent for P. error. Adomaites Even a minor correction in Marilyn the real Lord-James estate market was bound to leave Gerard borrowers J. McCreightand lenders with Patricia negative M. equity, Meisenheimer meaning that the amount of Kristen the debt Ryan secured by the mortgage used to buy the house would exceed its market Counsel value. In addition, many mortgage Jeffrey loans D. Powell were adjustable rate loans William with T. Ferris rates III that would adjust upward over time if the index increased (the Of index Counsel is a published rate of interest, like the prime rate or treasury bond yield, to which these loans William J. Graham were pegged). As the federal reserve Special Counsel increased its various fund rates, including the Joshua prime M. rate, Pruzansky over the past

6 A Summary of the Firm s Areas of Practice Litigation Litigating all matters in state and federal courts, in trial and appellate courts, on behalf of businesses, municipalities, estates and individuals. Our litigation includes criminal and commercial litigation, actions on mortgages, notes and security agreements, employment and civil rights claims, violations of restrictive covenants. Personal Injury and Products Liability Claims Representing plaintiffs in personal injury actions or wrongful death claims resulting from accidents, products liability or malpractice. Professional Discipline and Liability Representing doctors, lawyers and other professionals in grievance/disciplinary proceedings and actions involving professional liability. Real Estate Representing buyers and sellers of residential and commercial real estate, in simple as well as complex transactions; negotiation and drafting leases. Business Transactions Negotiating and structuring new business ventures, formation of corporations, LLP s and LLC s, preparing shareholder and partnership agreements, employment agreements, consulting agreements, licensing agreements; buying and selling existing businesses, advice on due diligence and tax-related issues. Estates, Wills, Trusts, and Elder Law Probate and administration of estates; estate planning, trusts, drafting of wills, health care proxies, living wills and durable powers of attorney; planning for individuals with substantial estates with a goal toward a significant tax savings. Criminal Law Representing defendants charged in both state and federal courts involving charges of business and white collar crimes, DWI, Vehicle and Traffic violations, crimes of violence and street crimes. Labor and Employment Law Counselling on human resources and employment-related issues, in both the public and private sectors, counselling and appearances in wrongful termination, discrimination lawsuits, and administrative proceedings. Land Use and Municipal Law Representation before town and village boards and courts concerning all phases of zoning and land use regulations. Professional Relationships Representing Doctors, Lawyers and other professionals in partnership formations, preparing Partnership Agreements and representation in partnership disputes.