New Jersey Employee Misclassification Attorneys
In the eyes of the government, and by extension, the IRS, there are two types of workers: independent contractors and employees. There are legal distinctions between the two. The process of determining which type of worker you are is called classification. Employers often misclassify their employees as independent contractors to limit their monetary and legal obligations to their workers as well as to the State and Federal governments. Employers also do this to limit their tax liability. Misclassification hurts workers, law-abiding businesses, and the State.
In January 2020, New Jersey took a step in the right direction in terms of empowering workers: Governor Phil Murphy signed five employee-friendly bills into law after a task force uncovered rampant employment misclassification. These new laws increase the penalties for employers that misclassify workers and requires that employers pay severance to workers affected by mass layoffs. Additionally, employers must post notices that explain:
- Definitions of employees and independent contractors;
- Prohibitions against employers misclassifying workers;
- Protections and benefits available to workers via wage, benefit, and tax laws;
- Solutions available to misclassified workers; and
- Information on how a worker may contact relevant authorities to file a complaint.
Recent legislation also protects employees who make complaints about misclassification. Employers are prohibited from terminating or discriminating against independent contractors who inquire or complain about possible misclassification.
These laws, however, will not solve all workers’ woes. As strong advocates for workers’ rights, the New Jersey employment attorneys Richard Schall and Patricia Barasch believe there is still more that needs to be done.
What is worker classification?
Worker classification determines whether a worker is an employee or independent contractor.
If you are an employee, your employer must:
- Deduct a portion of your wages to pay taxes on your behalf; and
- Pay taxes on your wages out of their own revenue.
If you are an independent contractor, you are considered self-employed. The company you work for does not have to pay employment taxes on your wages. You will be responsible for paying your own self-employment taxes. Independent contractors receive 1099 tax forms while employees receive W-2 tax forms.
More than half of all states in the U.S. use the “ABC test” when determining employee/independent contractor status, including New Jersey. Initially, all workers are assumed to be employees. In order to classify a worker as an independent contractor, a company must prove that the worker meets each of the following criteria:
Independence from instruction and direction
- The worker has been and will continue to work without control or direction from the company. Company control or direction could include the following:
- Specifying your responsibilities;
- Giving instructions;
- Providing training;
- Having the right to fire you;
- Specifying what tools or supplies you must use while working;
- Instructing you to complete tasks in a specific order; or
- Specifying your responsibilities.
Usual course of business
- The service the independent contractor provides is outside of the company’s usual course or place of business.
- For example, it would be outside of a law office’s usual course of business to contract someone to paint their walls and perform other construction work.. In this case, the worker might be an independent contractor.
Established independent trade
- An independent contractor engages in an independently established trade, occupation, profession, or business from that of the company where they are providing services. There are many factors that determine whether your work can exist separately from the relationship with the company for which you are working. Some of these include:
- How long you have worked for the company;
- Whether you use your own tools, computers, vehicles, or other materials;
- The amount of workers the company employs; and
- Whether you work for more than one person or firm.
What is worker misclassification?
Worker misclassification is when your employer classifies you in the incorrect worker category. In almost all cases, misclassification is when an employer classifies workers as independent contractors, when in fact, they are employees. This is sometimes called false self-employment.
Just because a company issues you a 1099 tax form, that does not mean you are legally an independent contractor.
Signs you are an employee, not an independent contractor
- Your job is similar to other full-time coworkers who are classified as employees;
- You have been hired indefinitely, rather than for a specific period of time;
- All or most of the equipment you use is issued by your employer; and
- You do not issue invoices to your employer.
Why is misclassification bad?
If your employer misclassifies you as an independent contractor, you will:
- Pay all of your Social Security and Medicare taxes out of your own paycheck.
- Remember, if you are an employee, your employer must pay half of these taxes
- Be ineligible for workers’ compensation benefits.
- Your employer will not need to pay for workers’ comp insurance for you.
- Have none of the workplace rights that employees have.
- This includes the right to a minimum wage, overtime pay, sick pay, rest breaks and the right to organize under the National Labor Relations Act.
- Be ineligible for unemployment benefits.
- Your employer will not have to pay for unemployment insurance for you.
Not only does misclassification hurt workers and law-abiding businesses, but it also hurts the State. The State loses millions of dollars of revenue each year due to misclassification. This deprives critically important agencies and programs of necessary funding.
Are there penalties for misclassification?
The Commissioner of New Jersey’s Labor and Workforce Development may fine employers $250 for a first time misclassification violation. Subsequent violations are subject to $1,000 fines.
If you were misclassified, you can receive back pay for unpaid minimum wage, overtime, failure to pay prevailing wage, and various other fines as addressed in the NJ Wage and Hour Laws. You will also be entitled to the benefits afforded to employees such as workers’ compensation and unemployment insurance. Additionally, your employer may be required to pay you a penalty equivalent to up to 5% of your gross earnings from the past 12 months. Finally, if you were wrongfully terminated due to complaining about misclassification, you could be reinstated.
Stop work orders
The Commissioner may issue stop work orders to employers that violate state wage, benefit, or tax laws. Stop work orders suspend the employer’s operations wherever the violations occurred. Employers that do not obey stop work orders may face fines of $5,000 per day.
New Jersey Misclassification Attorneys
Unfortunately, misclassified workers tend to be “the little guys.” This includes construction workers, caretakers, and many other low-wage workers. Far too many of these misclassified workers fear retaliation for complaining about their worker classification status. This is not conducive to a level playing field in America’s workforce. Employment attorneys Richard Schall and Patricia Barasch fight against any corporation, no matter how big, or advocate for any worker, no matter how small.
Richard Schall agues against forced arbitration before the New Jersey Supreme Court