A series of bills aimed at discouraging employers from misclassifying workers as independent contractors was signed into law Monday, Jan. 20 by Gov. Phil Murphy.
Those who may be affected by the new rules include construction workers, food delivery workers, UBER and LYFT drivers, seasonal workers and others who regularly render services to businesses but are not on the employee payroll.
Not included in the legislation signed Monday was a controversial Senate bill, S-4204, which would have altered the ABC test used to determine if a worker is an employee or a contractor.
S-4204 was met with heated opposition from freelance writers, truckers, wedding photographers, musicians and business groups, including the United States Chamber of Commerce.
Sponsored by New Jersey Senate President Stephen Sweeney, S-4204 failed to progress to the governor’s desk before the end of the 2019 session, but it could be reintroduced in 2020.
Business owners who fail to comply with the new state requirements may risk audits and penalties that could result in a sea of red tape and a blow to their bottom line.
It’s critical for small businesses to be aware of the laws and make sure they’re in compliance, noted Sherilyn Przelomski of Middletown, a certified human resources consultant whose company, Business Enhancement Services & Training Consulting, advises small businesses on a wide variety of hiring and human resource issues.
New Jersey requires employers to apply what’s called the ABC test to determine whether a worker qualifies as an independent contractor, Przelomski said.
The ABC test requires employers to ensure independent contractors operate without the employer’s control or direction over how they do their job; that the service performed by the worker is not part of the company’s usual course of business; and that the worker is normally engaged in an independent business or occupation, for example, if they have other clients.
The rules apply whether a business is a large corporation or a small mom-and-pop, Przelomski said.
“I went through a department of labor audit for my own business,” she said. Her company was tagged for an audit after one of the clients she consulted for was audited, which led to an audit of all of the companies that business issued 1099s for, including Przelomski’s.
“It taught me a lot,” she said. “It was quite an eye-opening experience. It was a very vigorous process.”
With the advent of the “gig economy” and the increasing complexity of the laws governing how businesses use and classify employees, it’s critical for employers to learn and follow the laws in their state, Przelomski said.
The task force noted in its report that the misclassification of employees as independent contractors has increased by 40 percent over the last 10 years.
Last November the New Jersey Department of Labor and Workforce Development charged the UBER ride-hailing company with failing to pay $530 million in unpaid unemployment and disability insurance from 2014 to 2018. The state tacked on an additional $119 million in interest for the unpaid taxes.
UBER is disputing the classification of its drivers as employees,
maintaining they are independent contractors.
While the new legislation is intended in part to protect the rights of workers
who do the work of full-time employees but don’t receive benefits such as overtime,
health coverage, vacation time, unemployment insurance and safety protections, many
workers who rely on wages from independent contracting services fear that the
tightened restrictions will mean less opportunity for freelance work.
Bills A-5838, 5839, 5840, 5841, 5842 and 5843 expand penalties for the misclassification of workers, increase scrutiny of businesses that are out of compliance and allow the state treasury to share tax information with the state department of labor.
A joint statement issued by the bills’ sponsors said, “Classifying workers as independent contractors as an alternative to full or part-time employment has been a grossly misused practice.”
The legislation is not intended to be punitive, said Assemblyman Eric Houghtaling (D-Monmouth), sponsor of the bill authorizing stop work orders for construction businesses that misclassify contract workers as employees.
Employers who use unskilled labor to save labor costs instead of paying the prevailing wage for skilled trades workers undercut legitimate businesses and their workers and risk delivering an inferior product.
“You are paying for a qualified work force,” Houghtaling said. The legislation “is not designed to hurt anybody. It’s designed to eliminate bad contractors.”
According to the Governor’s Task Force report, a year 2000 Department of Labor study disclosed that the misclassification of construction workers in New Jersey cost the state an estimated $3.1 to $6.7 million in unpaid unemployment insurance and disability contributions as well as uncollected state income taxes on $11 million in off-the-books employment and $9 million in unpaid employment taxes as a result of the misclassification of employees as independent workers.
This article originally appeared in the Jan. 23, 2020 print edition of The Two River Times.
