New Jersey Enforces Fines and Penalties Against Employers Who Misclassify Employees
In July 2021, Governor Murphy’s mandate cracking down on worker misclassification went into effect. Employers must properly classify anyone who fits the category of “employee” cannot get classified as an independent contractor. If employers attempt to save money on payroll taxes and benefits by misclassifying their employees, they risk large fines and penalties that will cost them more than they saved at the onset.
Read on to learn more about the new law and how it affects you and your company.
What Does the Law Classify as an Employee?
Independent contractors must fit certain parameters within their contracted employment to be classified as such. If they do not fit the parameters listed below, they must be classified as an employee as opposed to an independent contractor.
Independent contractors must meet New Jersey’s ABC test as described below:
- The contractor can come and go as they please and are under their own control. They do not need to answer to an employer regarding any issues of control or how the services are performed.
- The services are not part of the usual course of business for the employer, or the service is performed outside of the business places of the company.
- The contractor works independently in their trade, profession, business, or occupation.
What Penalties Are Placed on Employers Regarding Misclassifying Employees?
The law works to stop employers from benefiting from the misclassification of employees. The following penalties affect employers who continue to misclassify employees:
- Up to $250 for the first violation of a misclassified employee.
- Up to $1,000 per additional misclassified employee
- The employer must give the misclassified worker up to 5% of their gross earnings over 12 months.
- Stop-Work Orders (AB 5838). The NJDOL can issue a stop-work order for any violations of wage, benefit, and tax laws. Employers would need to stop all business operations until the NJDOL releases the stop order. A civil penalty of up to $5,000 per day the stop-work order is ignored may also accompany the stop-work order.
- Joint Liability (AB 5840). The law holds employers and staff agencies jointly responsible for violations of the laws. Owners, directors, officers, and managers can also be individually accountable for the violations of the law.
- NJDOL Website Posting (AB 4226) . The NJDOL can post violators on their website. As a result, the person or entity can be prohibited from contracting with any public entity until the violation is properly resolved.
- Sharing of Tax Information (AB 4228). The state Treasury Department can share categories of otherwise confidential tax filers, including tax information statements, audit files, reports, returns, or reports from investigators with the NJDOL. The sharing of information is meant to assist with investigations or enforcement actions.
How Can You Prevent Misclassifying Employees?
Misclassifying employees can sometimes be easier than you think. It takes an experienced HR department to ensure your employees get properly classified, so you avoid any penalties under the law.
Workplace HCM can help you ensure your employees are properly classified, and you follow all employment, tax, and benefits laws as described in New Jersey. With the help of the HR experts at Workplace HCM, you can avoid hefty penalties and work stop orders to ensure you can continue business as usual. Call us today at 856.334.9711to learn more about how we can help you manage your employees so you can manage your business.