It’s graduation season, and with a fresh crop of potential employees entering the market, this is a great time to evaluate your company’s hiring procedures. In this spirit, we will be sharing a series of posts addressing employment topics and issues. If you are just beginning to hire employees, it is imperative that you understand what responsibilities you have as an employer.
In this first post we will discuss the legal implications involved with hiring new employees. Is the new hire truly an employee or an independent contractor? If that person is considered an employee, what obligations do you have as an employer?
Employees v. Independent Contractors
The first question to ask yourself is: “Is he or she actually an employee or an independent contractor?”. This is an essential question, as under Employment Law, employees have significantly more rights than independent contractors.
A good rule of thumb in making this determination is to look at the level of control you exercise over the employee. Whereas employers maintain a significant level of control over employees, they do not share the same rights in regards to independent contractors.
If you can answer “yes” to the following questions, the individual is likely an employee:
- Can you choose when, where, and how work is done?
- Do you provide office space, tools, and/or supplies to this person?
- Do you directly supervise the individual’s performance?
- Do you pay this person a monthly or weekly salary?
- Do you have the right to approve all work created?
- Do you have the right to approve time off?
- Can you fire the individual?
In contrast, independent contractors possess significantly more freedom in their mode and manner of completing work for your company. They may retain the right to work for other companies (including competitors) and often have an established business of their own. They set their own rates for work performed and choose which projects to accept or reject.
Remember – employment laws are created to protect workers, who are in a weaker bargaining position. Although you and your business have some freedom to contract with workers, you can’t just classify an employee as an “independent contractor”. In other words, if you treat someone like an employee, then they are an employee. Having an employee sign a contract stating that he/she is an “independent contractor” doesn’t make that person an independent contractor. Your business would still be liable for complying with employment laws.
As an Employer, you undertake certain personal and tax related liabilities for your employees. Generally, you are not liable for the actions or negligence of an independent contractor, however you may be for an employee.
If disputes arise involving actions of your employee or independent contractors, understanding your liability in the situation is key. Courts will often rule that employers are responsible for actions taken by employees during the scope of their employment. In other words, was the individual acting as an agent or representative of your company when the act in question occurred? If yes, you as an Employer may be held liable.
Further, it is important to be aware of the tax consequences of hiring employees. If the new hire is defined as an employee (and not an independent contractor) they will be classified as a “W-2 Employee”. In practice, this means that you have a responsibility to withhold certain taxes from that employee’s payroll.
Moreover, Employment Law requires employers to maintain certain protections for their employees such as Unemployment, Disability, Social Security Insurance, and newly in New York State – Paid Family and Medical Leave Insurance.
The decision to hire employees is an exciting time for your business, but a decision that comes with a lot of responsibility, so make sure your company is prepared for the investment.
In our next post we will discuss the process of actually hiring an employee and the documents you should have in place for new hires to protect your company in the long term.