New Jersey companies that provide court-reporting services are claiming that the state Department of Labor (DOL) targeted them with audits in order to persuade them to change court reporters’ status from independent contractors to employees. Prior to a legislative amendment enacted in 2010, court reporter services were exempt under the New Jersey Unemployment Compensation Law (UCL) in one of two circumstances.
The first is if they were exempt under the Federal Unemployment Tax Act (FUTA), a law that imposes a federal employer tax based on employees’ wages or salaries to assist the federal government in funding unemployment. The tax only applies to employees and not independent contractors.
The IRS has provided three factors for consideration to assist employers in determining whether to classify a worker as an employee or an independent contractor: behavioral control; financial control; and the parties’ relationship to each other. Generally, employers direct and control how services are performed by employees, whereas independent contractors have more independence and determine how the work will be done for themselves.
The second circumstance warranting court reporter service exemption under the UCL is if they can pass the ABC test. The ABC test provides three factors for consideration: whether the worker is free from control or direction of the employer; whether the work they performed was outside the usual course of business; and whether the worker is customarily engaged in an independent trade or business.
The UCL was amended in 2010. Under the amendment, court reporters are considered independent contractors and are therefore exempt from classification as employees if:
- They work on a freelance basis
- They are paid a flat rate attendance fee
- They get paid a certain fee per transcript page as an independent contractor
Ruling on Classification of Court Reporters
A recent case led to an administrative law judge’s ruling that the services of court reporters are exempt, regardless of an existing parallel exemption under FUTA or the ABC test.
The DOL argued that despite the 2010 revision, the court reporting service must still show a parallel exemption under FUTA or the ABC test to be exempt from unemployment tax or disability payments. However, the administrative law judge disagreed with the DOL, and granted the company’s motion for summary judgment on its appeal of the DOL’s decision that it was liable for $14,669 in unemployment and disability contributions. The judge ruled that the court reporting service is not liable for 2010 unemployment payments or disability taxes for its court reporter employees.
According to the Certified Court Reporters Association (CCRA) of New Jersey, the state’s issuance of industry-wide audits for court reporters and agencies is an attempt to have court reporters’ status changed from independent contractors to employees, thereby increasing tax revenue to the state.
The DOL has already filed an appeal, which will be heard by New Jersey’s Labor Commissioner, an appointee of Governor Murphy. The CCRA warns that if the DOL succeeds, it will fundamentally change the way New Jersey companies do business.
Marlton Employment Lawyers at McOmber McOmber & Luber, P.C. Provide Assistance with Employee Classification
Call our Red Bank office at 732-842-6500, our Marlton office at 856-985-9800, our Newark office at 973-878-9040, or contact us at 888-396-0736 or online for a free consultation. We represent clients throughout New Jersey.