Law Protecting New York Truckers to Take Effect April 10th

Published: Apr 3, 2014

samsebeskazal / Foter / CC BY-SA

Last summer an important bill was signed into law in the state of New York. Bill S5867, later named the New York State Commercial Goods Transportation Industry Fair Play Act, aims at protecting truckers by more clearly defining who classifies as an “independent contractor”. It’s about to take effect very soon (April 10th) so let’s look at its implications for New York truckers.

Why Was the Law Needed?

truck 18-wheels

Photo Credit: Free Digital Photos

First of all, you might wonder why such a law was needed in the first place, but the answer is very clear. When an employer reports employee wages on the IRS’ W-2 and 1099 forms, they have to pay different kinds of taxes based on the income they state. Many of these taxes are not applicable if the employee is classified as an independent contractor, so employers frequently list them as such in an effort to save money. Thus, misclassification is hurting employees, who are deprived of healthcare benefits, unemployment benefits, etc.

A study conducted by the School of Industrial and Labor Relations at Cornell University found that misclassification of workers in the state of New York is a very common practice. Just between the years 2002 and 2005, close to 40,000 employers misclassified more than 700,000 employees.

Another study, conducted by the Drum Major Institute, found that 18% of truck drivers in New York are wrongfully misclassified as independent contractors.

What About the IRS Classification?

The IRS already has set classification in place for employees and independent contractors. But determining the correct identification is not always easy. You must evaluate the following three categories in order to determine what the relationship between the employer and the employee/independent contractor is:

  • Behavioral: If the employer has direct control over “how the worker does the work,” then the worker is considered an employee.
  • Financial: A worker is considered an employee if the employer “has the right to control the economic aspects of the worker’s job.”
  • Type of relationship: This aspect has to do with “how the worker and business perceive their relationship to each other.”

If the IRS has already taken care of the classification, then why is the new law necessary? Well, the IRS terms are a bit broad and may not be equally applicable to all situations. Therefore, the New York State Commercial Goods Transportation Industry Fair Play Act aims to go one step further in protecting the rights of employees and independent contractors.

What Are the Specific Provision of the New Law?

The main postulate of the law is that workers who get paid for transportation of goods services will be classified as employees, unless they meet the strict requirements for independent contractors or separate business entities. NY lawmakers have come up with an 11-point separate business entity test and an ABC test for drivers.

Contractors and subcontractors will now have the responsibility to post a notice, describing “the tax responsibilities of independent contractors, as well as employees’ workers’ compensation rights, unemployment benefits, minimum wage, overtime compensation, and other federal and state workplace laws, inclusive of a description of the Act’s anti-retaliation provision and penalties.”

taxes

Harsh penalties are set in place for employers who fail to comply with the Act. First-time offenders are facing a penalty of up to $2,500 per misclassified employee and up to 30 days in prison or, alternatively, a $25,000 criminal fine. For a second offense (or more), the penalty goes up to $5,000 per employee and 60 days in prison. The criminal fine would be $50,000.

The law received the approval of the New York State Motor Truck Associations, which feels the provision of the law can adequately protect workers who prefer to maintain their independent contractor status. Others, however, feel that the law doesn’t achieve much beyond transferring the responsibility from the employee to the employer.

What is your take on the New York State Commercial Goods Transportation Industry Fair Play Act? Does it do more harm than good? Please share your opinion below.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.