What is the new legislation?
As of May 20, 2024, businesses in the state of New York will have to enter into written agreements with independent contractors (or freelancers) who provide at least $800 in services rendered1. Note the $800 threshold could be either by itself or when combined with other contracts for services between the same hiring party and freelancer during the preceding 120 days. This does not apply to services provided by attorneys, construction contractors, licensed medical professionals, or sales representatives.
With this law, New York-based employers must furnish their independent contractors with a physical or electronic copy of the required written agreement and keep a copy of the agreement for 6 years. This agreement must include the following details:
The name and mailing address of the hiring party and contractor
An itemization of all services (and their value) to be provided
The rate and method of compensation
The date a contractor must be paid (or the mechanism for determining payment dates)
The date by which contractor must submit a list of services rendered (invoices)
What is the penalty?
As stated above, NY businesses are required to store these agreements for 6 years. Subsequently, freelancers have 6 years to file a complaint with the Commissioner of Labor or in court and may be entitled to the amounts owed for services rendered and other penalties. Employers may face fines of up to $25,000, providing that there is reasonable cause to believe that the hiring party engaged in a pattern or practice of violating the law.
Do you have a trail of documentation?
For many businesses, there are oftentimes multiple groups that use contractors, so it is essential to have company-wide policies that dictate how contractors should be screened and engaged. Ensuring contractors are qualified and have fulfilled requirements like signing contractor agreements and NDAs, completing background checks and drug tests, and providing certifications/licenses should be part of the standardized onboarding process.
Given the volume of paperwork that needs to be collected for each worker, organizations should consider scalable processes for the collection and storage of contractor agreements and other documents. Having a centralized, digital repository that is searchable by worker or other criteria would be instrumental for compliance needs. Businesses should also provide contractors with a streamlined, digital process to submit and complete requirements. An easy onboarding process for workers will help ensure contractors can be deployed for work in an effective and efficient manner.
How can you mitigate compliance risks?
Without systematic processes to collect and store contractor agreements, invoices, and other crucial documents, your organization faces an increased risk of noncompliance which could result in costly penalties. Unfortunately, traditional HCM platforms built for W2 employees often cannot easily accommodate the unique needs of managing a contractor workforce. Many businesses are instead turning to contractor management systems that can automate the collection and storage of worker documents and provide an intuitive self-onboarding experience for contractors.
WorkMarket by ADP helps businesses onboard, verify, and pay their independent contractors (freelancers, 1099 workers) efficiently and compliantly. Leverage automated workflows to collect and store contractor agreements, NDAs, licenses, certifications and more. WorkMarket also verifies US tax IDs and bank accounts, and facilities background checks and drug tests for U.S. workers through third parties. As everything is stored in one central repository, you can easily track which workers have met their requirements and those that did not fulfill a part of their onboarding (such as signing the contractor agreement). Once a work assignment is completed, WorkMarket will automatically generate an invoice on behalf of the contractor, producing an invoice audit trail for each worker too. Learn more about how WorkMarket helps businesses grow with an independent contractor workforce while maintaining compliance.
1: NY State Senate Bill S5026 / Act 6040 (2023)
