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COMPLIANCE TIPS: Employee Classification

In May 2018, NJ Gov. Phil Murphy established a Task Force on Employee Misclassification focused on ensuring that employees are properly classified as W-2 wage earners rather than 1099 independent contractors. The Task Force enforces the ABC test set forth in Hargrove v. Sleepy's, which presumes a worker to be a W-2 employee unless the employer can demonstrate the independence of the worker in performing the essential functions of the job, that the worker serves other masters, and is regularly engaged in an independently established trade, occupation, profession or business.

In light of the NJ Department of Labor's focus on misclassification issues, you can expect heightened attention from the state. It is particularly important to review your existing independent contractor relationships to ensure that you are not running afoul of New Jersey's employee classification rules. The Task Force made 9 recommendations that involve inter-agency training, data sharing, compliance enforcement, and proposed legislation to assist in enforcement. Such enforcement is already on its way with the enactment of Senate Bill 2557 (NJ Wage Theft Act) which required a "stop work" order for any employer deemed to be violating prevailing wage laws, suspending all business operations at all locations until released by the Dept. Of Labor or pay a penalty of $5,000 per day.

The State of New Jersey has made it clear that ensuring compliance with wage and hour laws is a priority and that violators will be targeted and punished.

Plan For Compliance

  1. Conduct annual audits of all contractor relationships to ensure that there have been no changes in the scope of the work or the working relationship.
  2. Make sure that your HR and contracting staff are familiar with the ABC Test.
  3. Have an internal compliance checklist and standard operating procedures as well as annual training.

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