Hiring Employees in New York: An Overview of Important Laws

Employees and Independent Contractors

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:

• setting specific working hours;
• providing equipment, tools, and supplies to use for jobs;
• providing direct supervision over the workers;
• reviewing or approving work product before it goes to a final client;
• requiring approval or coverage for vacations or time away from work; and
• working under an employer's name instead of the worker’s name or business.

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:

• have an established business,
• have their own advertisements,
• have their own insurance,
• set their own schedules,
• set their own rate of pay, or
• have the freedom to refuse work offers.

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:

• overtime pay,
• minimum wage protection,
• disability benefits,
• workers’ compensation benefits,
• health insurance benefits, or
• vacation or sick pay.

Virtually any benefit that is available to an employee is not available to an independent contractor.

Getting Your Employer Identification Number

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.

New Hire Reporting Requirements

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:

• Full name
• Address
• Hiring date
• Social Security Number or Taxpayer Identification Number
• Whether dependent health insurance benefits are available and, if so, what date the employee is eligible for the benefits

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.

Tax Withholding

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:

• individual officers or employees of the employer,
• a member of a partnership that makes up the employer,
• a member of an LLC, or
• a manager of an LLC or other company.

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.

Disability Insurance

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.

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.

Workers' Compensation Insurance

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:

• purchasing private workers’ compensation insurance from one of over 200 private insurance carriers who are authorized by the New York Insurance Department;
• purchasing a policy through the State Insurance Fund, which is a public insurance carrier funded by New York State;
• obtaining authorization from the Workers’ Compensation Board to become self-insured for workers’ compensation (usually for larger employers that have significant capital to carry potentially large losses); or
• becoming a member of a self-insurer group that is authorized by the Workers’ Compensation Board.

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.

Important Wage Laws

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.

• Minimum wage – As of December 31, 2016, the minimum wage law increased to $10.50 per hour for businesses in New York City with 10 or fewer employees; $11.00 per hour for companies in New York City with more than 10 employees; $10.00 per hour in Nassau, Suffolk, and Westchester counties; and $9.70 per hour in all other counties. The food industry has different hourly minimums for those who receive tips as part of their pay. The tipped amount and the hourly rate that you pay the employee must add up to at least the minimum wage. Hourly rates are expected to increase annually until, at least, 2021.
• Overtime laws – Employees who work more than 40 hours per week as non-residential workers should receive overtime pay. Residential workers should work 44 hours per week before they start earning overtime pay. Overtime pay is generally considered one and one-half of your regular rate of pay.
• Lunch and rest breaks – Employees are entitled to meal and rest breaks under both state and federal law. Factory employees should get a one-hour meal break between 11 a.m. and 2 p.m., and mercantile employees should receive half an hour for a meal break during the same time frame. If a shift starts before 11 a.m. and ends after 7 p.m., the employee should also receive a second 20-minute break between 5 p.m. and 7 p.m. If the shift starts between 1 p.m. and 6 a.m., a factory employee should get one hour for a meal in the middle of their shift. Mercantile employees should get a 45-minute break in the middle of their shift. There are situations where a shorter meal break is permitted if the labor commissioner approves. If you have approval for shorter meal breaks, be sure to post the information so that your employees are aware.
• Holiday, sick, and vacation pay – Under New York law, employers are not required to pay employees for any time that they did not work unless the employer has an established benefit policy that demands it. Sick time, vacations, and holidays all fall under “time not worked,” and employers are not required to compensate the employee for this time.

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