On Tuesday, July 9, 2019, the New Jersey Misclassification Task Force released their inaugural report. The task force issued 16 recommendations that if approved by the legislature will make New Jersey one of the most challenging states for companies to engage Independent Contractors.
I was reminded of the theme to the 1980’s television show, “The facts of Life,” while reviewing the provisions therein and have had the song stuck in my head all day.
"You take the good You take the bad You take them both and there you have …
The facts of life"
Some recommendations are as or even more stringent than California’s (The Bad), and some are as positive and progressive as Arizona’s (The Good). So in keeping with this theme, I have highlighted their recommendations into those two categories. Before going deeper into the recommendations, however, let's look a little more at the findings. The findings showed over 12,000 workers with an estimated $462 Million in unreported wages and $13 Million in unpaid state taxes. One of the motivating factors for the recommendations is to have an impact on wage garnishments for child support through the state of New Jersey.
The two areas most similar to California are fines and criminal charges. California Labor Code §226.8 and 2753 increased fines and penalties through enacting laws for misclassified workers. The California Labor and Workforce Development agency accesses civil penalties of $5,000 to $15,000 for each violation if the company unknowingly misclassifies workers. Fines increase to $10,000 to $25,000 for willful misclassification. Whereas in New Jersey, the proposed recommendations include $5,000 per misclassified worker for a first offense, $10,000 for a second offense, and increasing the penalties for record-keeping violations. California Labor Code §3700.5 states potential criminal charges can be applied. The New Jersey Misclassification Task Force has recommended that criminal referrals of intentional wrongdoing to the Attorney General as head of the Department of Law. Where the New Jersey Misclassification task force takes it further is that they are recommending personal liability on a company’s owners, directors, officers, and managing agents of companies when they are found to have engaged in worker misclassification.
Additionally, there were common recommendations that we have seen previously from the United States Department of Labor Memorandums of Understanding for data sharing between agencies and neighboring states. This practice would utilize existing workers’ compensation laws to bolster misclassification enforcement, including imposing fines on companies that misclassify workers as IC. The goal obviously to make it expensive for companies failing to provide workers’ compensation for individuals who should have been covered under state law.
Four recommendations focus on community outreach and education: I find this to be a positive as I think workers and companies want to be compliant; Workers and the engaging manager don’t know the details. As an example, earlier this year, I had an unscheduled call with a video content manager at a client that was pushing back. The push-back was regarding an assessment of his worker I had done and found that the worker needed to be classified as an employee. The finding of my assessment was that the worker did not have any business structure, including an EIN, or a certificate of formation with the state. The worker further confirmed he had not paid business-related taxes. As I educated the manager on why I had made this recommendation, he commented that he had previously been engaged as an IC by my client before becoming a Full-time employee and now knew he had not been compliant. Therefore their plans for targeted education and public outreach, including a hotline, a web-page, requiring state government contractors to affirm their awareness of worker classification laws, and cross-training all agencies and licensing boards in the state of New Jersey on the ABC test.
The Facts of Life:
What business today can afford not to be compliance-focused? Each week there are reports of new cases of fines levied in various forms including XPO logistics ($16.5M), exotic dancers ($4.59M), referees, and NFL Cheerleaders.
To, combat these fines, legal fees, and publicity, many businesses have engaged Tracz Consulting to complete internal education on Independent Contractor Compliance Laws. We have also assessed risk for potential fines and have reviewed many businesses embedded base of Independent Contractors allowing them to restructure, re-document, and re-implement their relationships with Independent Contractors. Tracz Consulting makes businesses compliant with applicable laws without changing their business model. Companies that deploy a review of their Independent Contractor vetting process minimize not only the likelihood of a legal dispute by a government agency but also reduce the likelihood that they will be the subject of a class or collective action brought in court. Schedule a consultation today to review your current population.
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