Governor Pledges to Crack Down on “Wage Theft”

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In May, Governor Phil Murphy signed an executive order establishing a Task Force on Employee Classification to address concerns surrounding the misclassification of employees as independent contractors.

The governor’s stated reasons for issuing the Order include the loss of tax revenue arising from employee misclassification, which some audits have estimated to amount to more than $500 million yearly, and the asserted loss to workers of important employment-related benefits and legal protections to which they are entitled.

Just prior to signing the Executive Order, Murphy explained that his team had looked to other states with similar task forces, such as New York and Massachusetts.  He also clarified that the purpose in creating the Task Force is not necessarily to create “more or better laws,” but rather to enforce existing laws, which are sometimes referred to as “wage theft” laws.

“We must crack down on wage theft,” said Attorney General Gurbir Grewal.

“More and more employers are misclassifying their workers as ‘independent contractors’ because they think it's cheaper than doing things the right way. But this practice isn't just illegal. It actually makes New Jersey's communities poorer in the long run by denying workers the wages and benefits to which they are legally entitled, and that are essential to building a fair and prosperous economy.

We are proud to join with other states in fighting this growing problem.”

The Task Force’s mandate is to provide advice and recommendations to the Governor’s office and executive branch departments and agencies on both strategies and actions to remediate misclassifications in the state.

According to John Sarno, president of the Employers Association of New Jersey, the most common misclassification made by employers is designating a worker as an independent contractor under a contract or agreement.  

“Some employers think that all they need is signed contract stating the employee is a contractor and to issue a 1099. But, in fact, a multi-part test must be satisfied” he says.

New Jersey follows the “ABC test” for classifying workers as independent contractors under the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law. Under the ABC test, to sustain a worker’s classification as an independent contractor, a company must demonstrate that the individual working in New Jersey: free from the company’s control in performing the services; and
B.performs work outside the usual course of the company’s business or outside the company’s place of business; and engaged in an independently established business.

Unless all three criteria are met, New Jersey considers the worker to be an employee who should be paid on a W-2 basis with applicable withholdings and deductions, including for New Jersey unemployment and temporary disability benefits.

“At some point we may see increased scrutiny into independent contractor status, particularly if a contractor files for unemployment or disability benefits. Also, contractors may ask for paid sick days. That will bring the issue forward” says Sarno.

The Executive Order was signed less than 24 hours after New Jersey became the tenth state to have a statewide paid sick leave law.
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