On May 3, 2018, Governor Phil Murphy signed Executive Order No. 25, establishing a Task Force on Employee Misclassification. The Task Force, which must meet, organize and commence work as soon as possible, was created to address New Jersey employers' misclassification of employees as independent contractors.
The Order proclaims misclassification a serious issue that denies workers their employment rights, protections and benefits, and causes significant harm to the state's economy by depriving it of more than $500 million in payroll taxes each year. Additionally, misclassification has widespread legal implications in such areas of the law as labor and employment, tax, insurance and occupational safety.
Duties of the Task Force
The Task Force, comprised of 12 members from various government departments and agencies, is assigned with advising the Governor's Office and departments and agencies within the Executive Branch on how best to take action against misclassification. Some of its specific directives include:
The actions of the Task Force will likely correlate with higher rates of investigations and audits as the government cracks down on misclassification.
Misclassified workers are a significant liability to employers - if it is determined that any independent contractors are in fact employees, employers would be on the hook for any, if not all of the following: contributions that should have been made to the state for such employees; health benefits; retirement plan contributions; paid time off; and, in other words, all benefits received by employees who were not misclassified.
Employers should immediately:
An individual must meet all three of the criteria under the "ABC test" to qualify as an independent contractor:
A. The individual is free from the company's control in performing the services;
B. The individual performs work outside the usual course of the company's business or outside the company's place of business; and
C. The individual is engaged in an independently established business.*
*Employers should take note that merely the act of issuing a check to an LLC will not alone satisfy element C of the ABC test.
Our Labor and Employment group is well versed in issues related to misclassification and can assist you in coming into and/or maintaining compliance.