Independent Contractor Misclassification and Compliance News July 2021

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

New Jersey recently enacted four laws that increased the enforcement of current laws and increased penalties for misclassifying workers, but the new laws do not change the standard for classifying a worker as an employee or independent contractor. These bills are in line with previous efforts by New Jersey to address the misclassification of workers, particularly workers in the construction industry.

A Brief History of Independent Contractor Classification in New Jersey

2015: New Jersey Adopts the ABC Test

In 2015, the New Jersey Supreme Court adopted the ABC standard for determining if a worker was an employee or independent contractor for labor law purposes.  This standard is similar to the ABC test in California and Massachusetts but allows a worker to be an independent contractor if they satisfy the A and C prongs of the test while providing services outside the company’s usual place of business.

2018: The Governor’s Task Force for Reviewing Misclassification

In 2018, Governor Phil Murphy created a task force to address unlawful misclassification of workers as independent contractors within the construction industry. The task force published a report detailing over 12,000 incidents of misclassification; unlawful payment structures and transactions; unreported wages; unpaid taxes and benefits; and additional violations. The task force submitted 16 recommendations, including recommendations for criminal penalties; education and training efforts; data sharing and further oversight; and others.

2019: Contemplation for A Stricter Version of the ABC Test—No Additional Action Taken Yet

In November 2019, a bill was introduced to modify the ABC test. Specifically, the bill contemplated eliminating the “outside the company’s place of business” language. This would have brought the New Jersey ABC test in line with the Massachusetts and California ABC tests. The bill did not pass.

2020: New Jersey Furthers Laws on Misclassification—New Changes and Penalties

In January 2020, New Jersey enacted more laws to address worker misclassification including:

• Stop-work orders allowing the Department of Labor to prevent employers from operating when they have violated wage, benefit and or tax laws.
• More misclassification penalties resulting in administrative misclassification penalties for each misclassified employee and a percent of gross wages penalty based on a worker’s gross earnings.
• If acting on behalf of an employer, complete responsibility for that employer’s tax violations meaning client employers and labor contractors will be held liable along with the employer they are acting on behalf for violations of state wage and hour laws and or employer tax laws.
• Legal action taken for retaliation meaning workers may bring a lawsuit against employers who terminate or discriminate against them for questioning or complaining about misclassification to their employer, other person, or entity; or for taking formal actions against misclassification.
• Making violators publicly known and preventing them from doing business with the government meaning the Department of Labor can use its website to publicly reveal any employer that has violated any state wage, benefit and or tax law and prevent them from entering into government contracts.
• Sharing tax information to assist with investigations meaning the Department of Treasury may share tax information that would typically be confidential to assist the New Jersey Department of Labor to investigate wage, benefit and or tax law violations.

2021: Four New Labor Bills

Governor Phil Murphy signed four new labor bills on Thursday, July 8, 2021. However, these bills do not change the ABC test or how employers should engage in classifying workers. Instead, these bills expand the Department of Labor’s enforcement powers to protect workers against unlawful misclassification and additional work-related violations, while expanding oversight and penalties. The bills and brief summaries of each is below:

• A-5890/S-3920 (Verrelli/Madden, Greenstein). This law is in response to the numerous violations of state wage, benefit and tax laws, as a result of misclassification; and therefore, is concerned with ensuring enforcement of misclassification and stop-worker order laws for the purpose of mitigating any wage and hour violations by contractors and employers.
• A-5891/S-3921 (Egan, Karabinchak, Space/Madden, Oroho). This law is in response to growing increases of misclassification by contractors and resulting harms to workers; and therefore, is intended to create a designated office and fund to oversee and ensure compliance with applicable employment, labor, and tax laws.
• A-5892/S-3922 (Sumter/Madden, Lagana). This law is in response to misclassification for the purpose of evading insurance premium payments; and therefore, increases this violation to a fraudulent act under the New Jersey’s Insurance Fraud Prevention Act, while allocating resources to detect such misclassification.
• A-1171/S-1260 (Freiman, Karabincak, Verrelli/Singleton, Oroho). This is in response to the little oversight historically involved in the payment methodologies used by state contractors to pay workers and the unforthcoming nature of these transactions; and therefore, is intended to create a public state database of payroll certifications for public/state work projects. Because this applies to public works projects, it does not affect MBO.

MBO Partners will continue to classify workers in New Jersey in accordance with New Jersey’s ABC test and continue to monitor legislative developments in New Jersey and other states.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.