New Jersey workers classified as independent contractors should remember the state’s rules for classifying workers as either employees or contractors. It may also help to be aware that New Jersey is now pursuing a major shakeup in the way businesses classify, use and compensate workers.

For much of 2019, New Jersey went after companies that violate labor laws by, among other things, illegally denying workers the right to workers’ compensation protections. The governor’s task force on worker misclassification reported dramatic findings in July 2019 and many of its recommendations quickly made their way into state law.

Kinds of worker misclassification

Some businesses misclassifying workers to increase profits, thereby breaking tax and other local, state and federal laws, as well as violating the workers’ rights.

There are several ways to misclassify workers, including paying them “off the books” and forcing them to form a limited liability corporation or franchise. The most common misclassification is probably treating them both as independent contractors and as employees, whichever benefits the employer in a given circumstance.

Ways to recognize misclassification

There is a handy “ABC” guide to recognizing an independent contractor. Unless all three apply, the worker is legally an employee:

  1. The worker supplies their services without control or direction.
  2. The worker supplies the services away from the business’s workplace or, alternately, the services are not what the company does in its usual business.
  3. The trade, occupation or profession the worker is offering is their usual and independent business.

Misclassification common and costly, state finds

A recent audit found over 12,300 cases of workers misclassification, and this audit only surveyed 1% of New Jersey employers. The New Jersey Department of Labor estimates that over all New Jersey employers, misclassification cost workers over $46 billion in wages and benefits in 2018 alone.