Employees Are Not Independent Contractors

Over the past six months, according to numerous real estate professionals, state auditors been taking heightened interest in the books of co-ops and condos. They’re trying to crack down on buildings that are flouting state labor laws by not putting employees on the payroll.

“That’s the first time they’ve done that in many years,” says Stuart Halper, vice president of Impact Real Estate Management. “The state knows that many co-ops and condos disguise regular employees as independent contractors or have not been listing the resident super’s apartment as part of their compensation.”

Big mistakes – and ones that can cost your building thousands of dollars in back taxes, fines and penalties.

“For tax purposes,” says Halper, “the value of the apartment should be considered income. Buildings are now subject to fines and penalties if they don’t do this and then pay the appropriate taxes, social security, unemployment insurance, and disability and compensation.”

Even before the wave of audits hit, Halper says, Impact was advising its clients to make sure they’re in full compliance with all state labor laws. “The end result for most of our clients has been no increases and no penalties, because we have been ahead of the curve, warning our clients that we have to be 100 percent in compliance,” he says. “If the government finds that you’ve disregarded the law, you’re looking at fines ranging from $5,000 to $10,000.”

Disguising regular employees as independent contractors with 1099 tax forms is a risk that’s not worth taking.

“Be wary,” Halper advises. “You want to be in full compliance. You don’t want to subject yourself to fines and violations.”