Recent rallies by Lyft and Uber workers are a sure sign that awareness of worker rights is growing. So too are crackdowns on employee misclassification by the government. While the National Labor Relations Board ultimately ruled that ride-sharing drivers are independent contractors, the buzz created by the strikes is putting employers on high alert.In New Jersey, the Department of Labor identified more than 6,000 employees who were misclassified in 2017. To address the issue, Governor Phil Murphy established an inter-agency task force to combat misclassification.
Some business owners purposefully misclassify employees to avoid paying for taxes, overtime, benefits, unemployment and workers’ compensation. Others do so unwittingly, due to simple
errors or misunderstanding.
There’s a lot at stake when it comes to classifying employees. It starts with fines, back payments, steep legal fees, and can end with harm to the employer’s reputation, and even jail time when mistakes are made, unintentionally or not.
Penalties can be steep. If misclassification is unintentional, an employer can be charged a $50 fee for each W-2 not filed, 1.5% of the employee’s wages plus interest, 40% of the employee’s FICA (Social Security and Medicare) contributions and 100% of the employer’s matching FICA contributions.
Misclassify on purpose and it gets more serious with greater fees and fines. There could be up to $1,000 in criminal penalties per misclassified employee, and up to 1 year in prison. The person who made the error in misclassification can also be held personally liable.
How to know whether someone is an independent contractor or an employee? In New Jersey, employers must look at the ABC test for determining employment status.
A – The individual is free from control or direction over the performance of the work (i.e., they are not supervised, compensated based on performance, or adhere to a set schedule); and
B – The service is either outside the usual course or nature of the business or is completed off the premises of the business (i.e., the work in question is not an advertised service of your business); and
C – The individual is customarily engaged in an independent trade, occupation, profession, or business (i.e., the worker may have clients or customers in addition to your business).
This article was published in Alloy Silverstein’s Summer 2019 Newsletter. Click here for more content or to subscribe.
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