NJ Governor Signs Legislation to Battle Worker Misclassification

At a Glance

• Governor Phil Murphy signed several bills into law on January 20, 2020 aimed at preventing worker misclassification with varying effective dates.
• Effective immediately:
• Employers violating certain state laws may receive issue a stop-work order
• Employers may incur penalties for failing to properly classify workers
• Joint employers are responsible for complying state employer tax laws
• The DOLWD has the right to post information of persons who violate state wage, benefit and tax laws on its website
• Effective April 1, 2020 employers must post notification about worker misclassification.
• Employers in New Jersey are still required to utilize the A.B.C. test to classify workers

Introduction

New Jersey Governor Phil Murphy signed six bills into law that are aimed at preventing worker misclassification and exploitation. In 2018, Governor Murphy formed a worker misclassification task force that resulted in an extensive report with suggestions for sixteen executive actions and legislation items.

New legislation the Governor signed the following bills into law:

• A. 5838 – Under the law, if an employer is in violation of any state wage, benefit and tax law, the commissioner may issue a stop-work order against the employer requiring cessation of all business operations at the specific place of business or employment in which the violation exists. Effective immediately.
• A. 5839 – The law states, if the Commissioner of Labor and Workforce Development finds that a violation of state wage, benefit and tax law has occurred and was in connection with failing to properly classify workers as employees, the Commissioner, in addition to imposing other remedies or penalties authorized by law, is authorized:
  • to assess and collect (1) an administrative penalty of up to $250 per misclassified employee for a first violation and up to a maximum of $1,000 per misclassified employee for each subsequent violation;
  • and (2) a penalty to be provided for the misclassified worker of not more than five percent of the worker’s gross earnings over the past 12 months from the employer who failed to properly classify the worker.
  • Effective immediately.
• A. 5840 – Under this law, a client employer and labor contractor providing workers to the client employer are subject to joint and several liability and share civil legal responsibility for any violations of state employer tax laws, including:
  • the workers compensation law
  • unemployment compensation law
  • temporary disability benefits law
  • and NJ Gross Income Tax Act

In addition, the client employer and labor contractors and responsible for the state wage and hour laws, including provisions of those laws regarding retaliatory actions against employees for exercising their rights under the laws and provisions of those laws regarding the misclassification of workers. Effective immediately.

• A. 5843 – This law requires employers to post notices about employee misclassification, in a place accessible to all employees in each of the employer’s workplaces. The law also prohibits employers from discharging an employee because the employee has made an inquiry or complaint regarding possible misclassification or because the employee has or is about to cause or be instituted any proceeding or has testified in a proceeding relating to worker misclassification under state wage, benefit and tax laws.
  • Employers who violate this law will be subject to a fine of not less than $100 nor more than $1,000.
  • For discharge or discriminatory actions, the employer will also be required to offer reinstatement in employment to the discharged employee and to correct any discriminatory action, as well as pay the employee all-reasonable legal costs, all wages and benefits lost, plus punitive damages of two times the lost wages and benefits, under penalty of contempt for failure to comply.
  • Effective April 1, 2020.
• S. 4226 – This law permits the Department of Labor and Workforce Development to post information of persons who violate state wage, benefit and tax laws on its website. Effective immediately and applicable to final orders issued on and after January 20, 2020.
• S. 4228 – The law is concerning tax data sharing between State Treasury and Department of Labor and Workforce Development. Under the law, confidentiality/disclosure protections would not prevent the director from furnishing the Commissioner of Labor and Workforce Development of any information, including, but not limited to, tax information statements, reports, audit files, returns, or reports of any investigation for the purpose of labor market research or assisting in investigations pursuant to state wage, benefit or tax law. Effective immediately.

Worker ClassificationNew Jersey uses the A. B. C. test for worker classification as an employee or independent contractor. The A.B.C. test was not changed by the bills passed into law on January 20, 2020.

Under the A.B.C. test, a worker is considered an employee unless they meet all three of the following standards, then they may be considered an independent contractor:

1. The individual is free from control or direction over the performance of services;
2. The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed; and
3. The individual is customarily engaged in an independently established trade, occupation, profession, or business.

Next StepsEmployers should post the required notices beginning on April 1, 2020. Additionally, employers should review their current worker classification status with the standards set by the A.B.C. test to ensure they are correctly classified as an independent contractor. Should you need assistance creating an employee record for an employee who was misclassified, please reach out to your account manager.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner.

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.