New Jersey Businesses: Got workers? Sure you do. Now here’s a new law you need to know about

As if being a business in New Jersey wasn’t hard enough, there’s a new law that all New Jersey businesses must know about – especially those using independent contractors. And it has some teeth. Don’t have any independent contractors? Great, but you can still be fined for failing to comply (so don’t stop reading!).

Here’s what you need to know: New Jersey requires all employers to display a poster about independent contractor and employee classification. Under the new law (found here), all employers must post a notice in the workplace explaining:

  1. the dangers of misclassifying employees as independent contractors;
  2. the State’s test for determining whether a worker is an employee or independent contractor (more on this below!);
  3. the benefits and rights available to employees under State law (read: what independent contractors are missing out on);
  4. the remedies available to workers who are misclassified as independent contractors; and
  5. contact information to report misclassification.

A copy of the required notice, which must be placed somewhere “accessible to all employees”, can be found here. Have workers working from home? Email them a copy. The law also prohibits retaliating against workers who challenge their classification . . . but you already know not to do that, right? Our take: Don’t ignore this – failure to display the notice can subject you to fines up to $1,000! And if you’re using independent contractors, make sure that they’re not really employees. It’s not as simple as calling someone an “independent contractor” in a written agreement. Not sure if someone is an employee or independent contractor? Here’s a quick test. To be considered an independent contractor in New Jersey:

  1. the worker must be free from control or direction over the performance of the work;
  2. the work performed must be outside the usual course of business for which such service is performed; and
  3. the worker is customarily engaged in an independently established trade, occupation, profession, or business.

Huh? Yeah, it’s confusing. This is a tough test and many workers who are treated as independent contractors are probably employees under this analysis. Some other factors that suggest someone is an independent contractor: they operate under their own established business entity (corporation, LLC, etc.) and at least one-third of their income comes from sources other than the alleged employer.

Ignore this at your own peril. The State is cracking down on worker misclassification. Employers who improperly classify workers as independent contractors have to pay back wages to ensure the worker was paid all earned minimum wage and overtime. Employers are also subject to a penalty of up to 5% of the worker’s yearly earnings and additional penalties ranging from $250 to $1,000. The State can also issue a stop-work order, suspend/revoke your business license, and impose additional penalties of up to 200% of the wages owed to the worker. It’s also likely that the worker will sue you, so add on some hefty legal fees to that. Ouch. New Jersey has once again made it clear that it plans on becoming one of the most employee-friendly states in the country. This new law essentially invites workers to file claims alleging that they’re really employees and are entitled to better pay and benefits (paid sick leave, family leave, etc.). That could be a big problem for businesses using independent contractors.

If you have questions about this new law, including the worker classification test, don’t hesitate to contact us. We’re here to help.

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