Hiring employees is often so daunting that business owners put it off for as long as they can. Nonetheless, there comes a certain point when your business may grow enough that hiring employees is necessary.
While you may be tempted to hire independent contractors or pay employees under the table, don’t! New York and federal laws prohibit this type of practice, and you can be fined extensively for violating labor laws that apply to your situation. To avoid these negative consequences, it is essential to understand the definition of an employee and work through your obligations as an employer in New York.
There is an important distinction between employees and independent contractors. Knowing the difference will determine whether you must pay particular benefits, like unemployment and workers’ compensation, and withhold taxes. Misclassifying employees or paying them under the table to avoid these expenses is considered fraud in New York. You can be criminally charged if you engage in that type of practice.
How can you determine whether you have an employee or independent contractor? You should use the same test that the state will use in examining your situation. It considers the relationship between the worker and the employer. When the employer has a great deal of control over the worker, there is more likely to be an employer-employee relationship. Examples of this control include:
How an employee is compensated will also have an impact on whether he or she is considered an employee. When a worker is paid by the hour or based on a salary, he or she is likely an employee. If the worker is paid by the project or by the milestone, he or she is more likely to be considered an independent contractor.
Those who are independent contractors may:
A worker may still be considered an employee even if the employer has the worker sign something that recognizes he or she is an independent contractor. The degree of control is the real test. Nonetheless, having this type of agreement can help your argument that the worker is an independent contractor.
Independent contractors do not have many of the same rights that employees have, which makes hiring them much less expensive for employers. For example, independent contractors generally do not receive:
Virtually any benefit that is available to an employee is not available to an independent contractor.
Before you can begin to hire employees, you must obtain an Employer Identification Number (EIN). This number will identify your business for tax and other federal and state purposes. You can apply for an EIN through the IRS and then register the number with the state of New York.
This process can take some time, so start with this step long before you start considering hiring your first employee.
When you hire or rehire an employee in New York, you must report the hire and the employee’s identifying information to the tax department within 20 days of the employee’s hiring date. The “hiring date” is whenever the employee first performs services or begins earning wages, not when you decide to employ him or her. Employers can use New York’s online reporting tool to provide this information. Otherwise, Form IT-2104 is also available to be filed in paper form.
The report that you provide to the state of New York must include the following information about the employee:
The employer should also report information about itself, including its name, address, and EIN.
Failing to report new employees as required can result in fines of $20 per employee not reported or failure to file the required report in full.
You are required under both state and federal law to withhold taxes from your employees’ paychecks. Then, you submit these payments periodically to the IRS and the New York tax department.
You should also fill out and file NYS-100, which will allow you to register as an employer for wage withholding and tax withholding with the State of New York.
When you hold taxes for employees, you are essentially establishing a trust fund on behalf of those workers. Because of that arrangement, you, as an employer, can be personally liable for failing to deliver employment taxes to the federal government or the state. You may also be subjected to penalties and interest if you fail to provide the required tax payments on time.
“Responsible persons” may also be held legally liable. These “responsible persons” may include:
As long as this person has the responsibility of collecting employee taxes and providing them to the government, he or she can be individually liable for that tax obligation if they do not fulfill their duties.
You can determine the amount of taxes you should withhold by asking your employees to fill out Form IT-2104, Employee’s Withholding Allowance Certificate. This form will include vital information about the employee, such as his or her name and address. It will also include data regarding the number of allowances the employee is claiming and whether they want any additional taxes withheld from their earnings.
Every “covered employer” is required to carry disability insurance. A “covered employer” is one that has one or more employees for at least 30 days of any calendar year. An employer can either purchase disability insurance through a private company or it can apply to the Chair for approval as a self-insured entity. The employer can also choose to purchase a surety bond in lieu of buying the required insurance coverage.
An employer can collect a weekly contribution of up to half of one percent of wages paid. However, the input cannot be more than 60 cents per week. The employer must bear the cost of the insurance if it exceeds the employee contribution.
In addition to having disability insurance generally, an employer must also notify the employees that they have this benefit available to them. An employer does this by posting a Notice of Compliance, Form DB-120, which states that disability benefits are available to all eligible employees. When an employee is absent from work for more than seven consecutive days, the employer is required to provide the employee with Form DB-271S, which describes the employee’s benefits under Disability Benefits Law in New York.
Disability insurance covers off-the-job injuries or illnesses, whereas workers’ compensation insurance covers on-the-job instances. Nearly every employer in New York is required to provide workers’ compensation benefits to their employees. As there are very few exceptions, it is a good idea to assume that if you have employees, you will need to plan on obtaining workers’ compensation insurance.
Employers can obtain workers’ compensation insurance by using a few methods, including:
You will use your federal EIN as your identifier for your business for workers’ compensation purposes. It is a good idea to get quotes from several private insurance companies to get an idea of what coverage will cost and who has the best rates.
Employers cannot collect any portion of the cost of workers’ compensation insurance from employees. In fact, it is a misdemeanor to do so. In addition, no agreement to waive workers’ compensation benefits with the employee is legally valid in New York.
There are several wage laws that you should know as an employer in New York. Violation of any of these requirements can result in fines and penalties. You may even be criminally prosecuted.
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