The difference cost NJ millions
In 2020, the state lost nearly half a billion dollars in taxes and workers were underpaid by tens of millions of dollars in wages due to misclassification – and those numbers represent just 1 % of state enterprises.
A practice that allows companies to avoid taxes at the expense of their employees, misclassifications cost the state hundreds of millions of dollars each year in underpaid taxes and cost workers even more than wages. rough, Labor Commissioner Robert Asaro-Angelo said.
“Never has there been a time when our department has worked so closely with other agencies, particularly the Attorney General’s Office and their new Affirmative Litigation Unit which works hand-in-hand without being as responsive but proactive,” he said. “Over the past few months, nearly half a million dollars have been returned to workers in compensation.”
By designating workers as independent contractors instead of employees, companies avoid paying the public system for benefits such as disability, unemployment and family leave. This practice also strips workers of traditional protections like minimum wage and overtime.
A 2020 state audit, the most recent data available, of 1% of New Jersey businesses found 7,149 misclassified workers, $443,356,502 in gross wages underreported, and $13,694,187 in dues underreported. declared, including temporary disability, unemployment and family leave insurance. When problems are discovered, the state sends an invoice to the companies.
“Companies that follow the rules find it difficult to compete with shady employers who bend the rules,” Senator Steven Oroho (R-Sussex) said in a statement. “Unscrupulous companies are illegally underpaying their employees, evading taxes, and circumventing health and social security costs. Tighter oversight will help end abusive labor practices and improve the quality of life for many hardworking New Jersey workers.
Earlier this year, the state Department of Labor announced it was asking an administrative law judge to uphold an assessment that ride-hailing company Lyft owed $16 million in unemployment dues and penalties, temporary disability and family leave. The underpayments were discovered after a four-year state audit.
According to the ministry, the company incorrectly classified the drivers as independent contractors rather than employees. Lyft disputes the rating.
The state says it is pursuing several approaches to combat the problem. Early in his first term, Governor Phil Murphy created a task force to uncover misclassifications and last year bipartisan legislative support gave the Department of Labor the power to issue stop orders. work, with bipartisan legislative support. This allows the department to shut down the operations of companies with violations.
“You used to hear people say it’s just the cost of doing business,” Asaro-Angelo said. “So it’s about changing the dynamic so that the cost isn’t worth it.”
Independent contractor vs employee
Peter Chen, senior policy analyst for New Jersey Policy Perspective, a left-leaning think tank, said workers who are classified as independent contractors often meet the definition of employee.
“They are controlled by their employers. Their employer tells them what to do. They are employees of their employers,” he said. “So misclassifying workers means taking workers who should be subject to all these protections and saying ‘well, they’re independent contractors, so they don’t need these protections’.”
Chen said this abuse leads to the misclassification of large swaths of occupations, with jobs such as truck drivers or maintenance staff increasingly being outsourced. Chen noted that nationwide, studies show that up to 20% of workers are misclassified as independent contractors and therefore underpaid or subject to potentially hazardous working conditions.
He called it “an unfortunate remnant of the failure at the federal level to update labor laws that were established in the 1930s and 1940s.”
Chen said some companies may not be aware that simply declaring an employee to be an “independent contractor” doesn’t actually make it possible and that New Jersey has laws that set out the kind of protections that must. be in place for an employee relationship to exist. unlike an independent contractor.
“There’s sometimes a lot of focus on the unemployment trust fund and the payroll tax fund, but I think that’s a disservice to other businesses that are doing it right and following the law,” Asaro-Angelo said. “In New Jersey, the law says that if you’re working, you’re an employee unless the employer can show us that person meets all three parts of the ABC test.”
Under this state test, workers must be considered employees unless three conditions are met, Chen said.
The three components are:
- The individual has been and will continue to be free from any control or direction over the performance of the work performed, both under a contract of service and in fact, which means whether an employer has control over what a worker does, including schedules, specific tasks and workflow.
- The work is either outside the usual course of the business for which this service is provided, or the work is performed outside all places of business of the business for which this service is provided, i.e. say whether the work is being performed as part of normal business operations.
- The individual is usually engaged in an independently established trade, occupation, profession or business, which means there must be a specific contract with the independent worker.
Sen. Troy Singleton (D-Burlington) said the misclassification is a problem he’s seen firsthand during his time in the build.
“It harms both workers and law-abiding businesses,” Singleton said. “We’re not going to tolerate that and we have a standard that we wanted to set to make sure bad actors get caught.”
He added that he was proud to have given the ministry the tools to punish these bad actors and protect honest companies.
Asaro-Angelo said some companies give workers the false impression that if they want to have a flexible schedule with part-time hours, they are independent contractors and not employees.
Chen said it’s important for New Jersey to have a “solid” definition of an employee.
“We’re not exactly a strong country when it comes to workers’ rights to begin with, so this further excludes employees, many of whom are low-income, from the protections they deserve,” he said. “Most people assume they have job protections like minimum wage, overtime pay, basic employee rights that apply to them. This workaround loophole deprives many people of the worker rights they deserve.
Katie Sobko is a reporter at the New Jersey Statehouse. For unlimited access to his work covering the governor of New Jersey and the political power structure, please subscribe or activate your digital account today.
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