New Jersey Plans to Crack Down on the Misclassification of Employees as Independent Contractors
New Jersey employers that utilize independent workers will likely soon find the State looking over their shoulders to see if such workers were properly classified as independent and to collect unpaid taxes for any misclassified workers.
On August 10, 2018, the New Jersey Department of Labor announced that it had entered into a worksharing agreement with the United States Department of Labor to end employee misclassification in New Jersey. According to the press release, misclassification of employees has cost New Jersey over $80 million in employer tax contributions since 2010.
This new enforcement effort could pose significant liabilities to New Jersey employers that utilize independent workers given New Jersey's broad view of the employer-employee relationship. Under New Jersey law all workers are generally considered to be employees, and thus subject to required employer tax contributions, unless the worker satisfies all three parts of the "ABC" test of N.J.S.A. 43:21-19(i)(6).
To qualify as an independent contractor under the ABC test, a worker must:
(A) be free from control or direction in the performance of the worker's services;
(B) perform the services outside the usual course of the employer's business or outside the employer's places of business; and
(C) be engaged in an independently established trade, occupation, profession, or business.
Courts have held that the test is to be liberally construed such that a employer-employee relationship can be found under the ABC test even if the relationship does not satisfy common-law principles.
The misclassification of employees as independent contractors poses significant liabilities to a business. In addition to unpaid employer tax contributions and associated penalties, which New Jersey has stated it will be aggressively seeking, an employer also faces possible liability to a misclassified employee for employee benefits and unpaid overtime.
Any businesses in New Jersey that utilize independent workers would be well advised to seek qualified legal counsel to assess the appropriateness of the independent classification and, if necessary, to assist in reclassifying the workers.
If you have questions about your business's use of independent workers, please call us at (201) 345-5412 or use our online scheduling page to set up a complimentary consultation.