How should employers classify employees versus contractors?

Classifying Employees vs. Contractors in New York

Proper classification of workers as employees or independent contractors is crucial for New York businesses to ensure compliance with state labor laws, tax obligations, and payroll requirements.

Key Operational Criteria for Classification

• Control Over Work: Employees typically work under the employer’s direction regarding how, when, and where tasks are performed. Contractors generally have more autonomy in completing their work.
• Financial Control: Employees usually receive regular wages or salary with tax withholding. Contractors often invoice for services and handle their own business expenses and taxes.
• Relationship Terms: Employees often have ongoing, indefinite relationships with the business, including benefits and training. Contractors are usually hired for specific projects or limited periods without benefits.

New York-Specific Considerations

• New York State Department of Labor Guidelines: Follow the NY DOL’s guidance which emphasizes the “ABC test” for many roles—workers are employees unless they meet all three criteria: (A) free from control, (B) perform work outside the usual business, and (C) customarily engaged in an independently established trade.
• Payroll and Tax Compliance: Employees require withholding of state and federal income taxes, Social Security, Medicare, and unemployment insurance contributions. Contractors receive 1099 forms but manage their own tax payments.
• Benefits and Insurance: Employees may be eligible for workers’ compensation, disability insurance, and paid leave under New York law. Contractors typically are responsible for their own coverage.

Operational Steps for Employers

• Review Job Roles: Analyze each position’s duties and working conditions to determine the correct classification before hiring.
• Document Agreements: Use clear contracts specifying the nature of the relationship, payment terms, and responsibilities.
• Maintain Accurate Records: Keep detailed records of hours worked, payments, and communications to support classifications during audits.
• Consult Updated Resources: As of 2026, regularly check New York State Department of Labor updates to stay compliant with any changes in classification rules.
• Implement Payroll Systems: Use payroll software or services that accommodate employee tax withholdings and contractor payments accurately.