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What the NJ Misclassification Report Means for Your Compliance Team

Jul 19, 2019

A new report this week from the New Jersey Governor’s office concluded that an estimated 12,000 workers in the state were misclassified as independent contractors. Through an audit of 1% of the state’s businesses, they estimated a loss of $13MM in tax contributions for the state. The report, released by Governor Phil Murphy at a speech in Atlantic City, therefore extrapolated that misclassification cost the state more than $46 billion in wages and benefits in 2018 alone.

Last year the governor had signed an executive order to create the taskforce establishing a 12-person team to examine existing employee-classification laws. They hoped to develop best practices to increase information and enforcement and make recommendations for compliance. “Misclassifying workers as 1099 employees denies them benefits,” said Labor Commissioner Robert Asaro-Angelo. “It makes them lose their rights to benefits of unemployment, temporary disability, earned sick time, minimum wage, overtime, all kinds of work-related benefits,” he said.

With the report, the Governor looked to keep a campaign pledge on cracking down on non-compliant businesses. “If you are engaging in these practices, we are either, A — going to bring you into compliance, or B — we are going to put you out of business,” Murphy said. He also stated that he would sign bill A-108/S-2557 which gives the state Department of Labor the power to issue stop-work orders whenever an initial work site investigation finds serious misclassification violations.

Along with its findings, the taskforce also recommended a 16-point call to action ranging from education, data sharing directives and increased penalties for non-compliance. They hope their findings would initiate policy change and public advocacy which would help the state pioneer new protections. “By understanding how misclassification functions and implementing innovative policy changes on a variety of different fronts, New Jersey can lead the charge in protecting its workers, taxpayers, and employers,” the report read.

The state is already one of about 20 who use the “ABC” test for determining independent contractor classification. The test, seen as pro-worker, features statutes dictating the freedoms that independent contractor’s should expect and the parameters for compliant engagements. However, unlike most state ABC tests, which typically only apply to unemployment and workers’ comp benefits, New Jersey’s ABC test also applies to wage payment, overtime, and minimum wage claims. This is similar to the statutes in only several other states including California, Massachusetts, and Illinois.

While this by no means prohibits the use of independent contractors in the state, it will make it more difficult for organizations to leverage their contingent workforce. For companies doing business in New Jersey, it will be critical to take a proactive approach. Compliance teams will need to become aware of new guidelines that may take effect as a result. With other states likely to follow suit, it will be more important than ever to structure, document, and engage their independent contractor relationships in a manner consistent with current and upcoming legislation. 


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Tyler Dlugolecki

Tyler oversees the content production efforts at Shortlist. As a marketer and entrepreneur, he looks to bring fresh thinking to their multi-channel readership. With a background in managing independent contractors, Tyler understands the challenges of modern freelancers and the professionals that hire them.