NJ Partners with USDOL to Combat Employee Misclassification

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On August 10, 2018, the New Jersey Department of Labor and Workforce Development signed the Memorandum of Understanding with the United States Department of Labor (USDOL). For the next three years, both agencies will work together to prevent and reduce the classification of independent contractors.

According to the New Jersey Department of Labor and Workforce Development, misclassifying workers as independent contractors has caused more than $80 million in underreported employer contributions since 2010. By misclassifying an employee, employers avoid paying state and federal taxes. Employees are also deprived from their legal rights and protections, as well as certain employment-related benefits.

Combating employee misclassification has been one of Governor Phil Murphy’s top priorities. Earlier this year, Governor Murphy created the Task Force on Employee Misclassification. The Task Force will:

  • examine and evaluate existing misclassification enforcement by executive departments and agencies;
  • develop best practices by departments and agencies to increase coordination of information and efficient enforcement;
  • develop recommendations for foster compliance with the law, including by educating employers, workers, and the public about misclassification; and
  • conduct a review of existing law and applicable procedures related to misclassification.

The establishment of the Task Force and the partnership between the New Jersey Department of Labor and Workforce Development and the USDOL sends the message that they will work together to protect workers’ rights and support businesses that follow the law.

To correctly determine whether an individual providing services is an employee or independent contractor, New Jersey employers can apply the three-pronged “ABC” test. The independent contractor must: (A) be free from control or direction; (B) perform services outside the scope of services offered in the usual course of business; and (C) be customarily engaged in an independently established trade, occupation, profession or business. Employers can also use this questionnaire to classify individuals they hire.