New Jersey’s Misclassified Employees
New Jersey was working on legislation that would have virtually eliminated independent contractors. That legislation did not pass, but in its place, five bills were passed or amended and signed into law on January 20, 2020 that authorizes various actions related to independent contractors in New Jersey.
The New Jersey Department of Labor has established that to be an independent contractor (1) the worker is free from control or direction by the company, (2) the service is something that is outside the usual course of the business or is performed outside the place of business, and (3) the worker is engaged in an independently established trade, occupation, profession, or business.
With this in mind, the new or amended laws include the following:
Bill number 5838
Allows the Commissioner of Labor and Workforce Development (DOLWD) to investigate state wage, benefits, and tax law issues. They can enter during usual business hours. Anyone who hinders the investigation may be fined not less than $1,000 and shall be guilty of a disorderly person offense. If a violation is found, the Commissioner may issue a stop-work order with seven days notice. The order will remain in effect until released upon finding the employer has come into compliance. The Commissioner may assess a civil penalty of $5,000 per day against the employer for each day that it conducts business in violation of the stop-work order.
Bill number 5839
Allows for the imposition of penalties for the misclassification of employees. If a violation is in connection with failing to properly classify employees, the Commissioner is authorized to assess and collect: (1) an administrative misclassification penalty up to a maximum of $250 per misclassified employee for the first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation; and (2) a penalty of not more than five percent of the misclassified worker’s gross earnings over the past 12 months. These payments may be paid to the misclassified worker either directly or in a trust account with the Commissioner.
The administrative misclassification penalty shall be applied toward enforcement and administrative costs of the division. This provides an incentive for the penalty to be imposed.
Bill number 5840
Allows for joint liability for payment of employee tax law violations of misclassified employees. An employer and a labor contractor providing workers to an employer shall be subject to joint and severable liability and share civil legal responsibility for any violations of the provisions of State wage and hour laws. This includes the misclassification of workers.
Bill number 4226
Allows the DOLWD to post information of a person who violates the State wage, benefits, and tax laws. This post may be on the DOL website. If the outstanding liability is satisfied prior to posting, no posting will take place. If a posting occurs, it will be removed within 15 days of being satisfied. Once placed on the list, the entity shall be prohibited from contracting with any public body until the liability for the violation is satisfied.
Bill number 4228
Allows the sharing of tax data between the State Treasury and the DOLWD. Previous to this amendment to this law, sharing of tax data was not allowed with the DOLWD. This will allow all tax data (i.e., Form 1099-Misc for non-employee compensation) to be shared with the DOLWD and assist in determining companies to investigate for misclassified workers.
In addition to these laws, a new notice will be required to be posted by employers effective April 1, 2020. This notice will advise employees that they cannot be misclassified as independent contractors; explains the factors to be an independent contractor; and how to file a complaint if they feel misclassified.
With all of the above in place, it is significant for employers to properly classify workers as employees or independent contractors in accordance with NJ DOL requirements. Also note that NJ DOL requirements for independent contractor status are much more stringent than Federal criteria.
Sax will continue to keep you informed of any additional updates related to independent contractors. For further information, please contact Sax advisor Alan S. Isaacs, CPA, MBA at [email protected].