The Distinction Matters: The Importance of Proper Employee Classification
When hiring a worker, the question of whether those services are provided as an employee or as an independent contractor is more than a matter of semantics but impacts the pockets of workers. Unlawful misclassification of workers usually takes the form of employers categorizing workers as independent contractors instead of employees. This is a cost-saving measure for employers, as they can avoid minimum wage obligations under the Fair Labor Standards Act (FLSA) and the New Jersey Wage & Hour Law (NJWHL) and avoid paying for health insurance benefits, paid leave, and workers’ compensation. Misclassification is pervasive: 10%-30% of employers misclassify their employees as independent contracts (Source)
Generally, workers classified as employees have access to the following benefits and protections under the law, while independent contractors do not:
- The right to minimum wage and overtime pay
- The right to unpaid, job-protected family and medical leave
- Certain anti-discrimination and anti-retaliation protections
- The availability of workers’ compensation if you are injured on the job
- The availability of unemployment insurance (UI)
- Employer payment of half of the Social Security and Medicare Taxes
Whether a misclassification has occurred is determined by a set of complex legal factors, including how workers receive and complete tasks. Fortunately, there is legal recourse for employees who have been misclassified as independent contractors. With offices in Red Bank, NJ, Marlton, NJ, Newark, NJ, New York, NY, and Philadelphia, PA the employment law attorneys of McOmber McOmber & Luber, P.C. can help you understand your rights and whether you are being paid your fair wage under the law.
Independent Contractor vs Employee: Understanding the Differences
There are many legal differences between an independent contractor and an employee. There is no hard and fast rule for determining a worker’s correct classification. Considering many of the factors below, the New Jersey Courts apply an “ABC” test– to determine whether a worker is an employee or an independent contractor.
- Autonomy and Independence: An independent contractor generally enjoys far more autonomy than an employee. Independent contractors are given leeway to accept or deny an assignment as they see fit, they may set their own schedule, and frequently will provide their services to more than one company at the same time. As a result, independent contractors often maintain their own private office or work from home where they will fully incur the costs of doing business. Employees, by contrast, provide their services at the direction of their employer. They lack the ability to make their own schedule, primarily report to their employer’s place of business during regularly scheduled business hours, and rarely perform similar services for another employer simultaneously.
- Tax Withholdings and Overtime: Independent contractors and employees differ in other key areas. Unlike an employee, an independent contractor will not have any tax or FICA withholding. Additionally, employees who are not managers or supervisors are entitled to overtime pay when working in excess of 40 hours in any given work week, but independent contractors are not entitled to overtime and are instead paid in accordance with the terms of their contract.
- Benefits and Protections: An independent contractor enjoys far less protection from unfair work practices than an employee. They receive no employment benefits – such as health and disability insurance – and are unable to participate in organized labor unions. If their services are terminated, they cannot seek unemployment benefits to bridge the financial gap between jobs, and if they become injured at work they cannot file a claim for Workers’ Compensation. Independent contractors also may not avail themselves of state and federal employment discrimination and workplace safety laws. They will receive no healthcare coverage pursuant to the Affordable Care Act (ACA). Many of the other protections afforded to employees – including rest breaks, vacation pay, and a guaranteed minimum wage – are unavailable to independent contractors.
- Fact: Most importantly, just because you are classified as an independent contractor by your employers, does mean you are legally an independent contractor.
- Fact: Receiving a 1099 does not make you an independent contractor.
- Fact: Signing an independent contractor agreement does not make you an independent contractor.
- Fact: Even if you are not on the payroll, you may still be an employee.
- Fact: You are not an independent contractor just because you work off-site or from home.
Employers Are Liable When Employees Are Intentionally Misclassified
Classifying employees correctly, from the onset, remains the responsibility of an employer. The problem arises when an employer misclassifies an employee as an independent contract – by no fault of the employee. When a worker believes that he or she has been misclassified, it is important that they take steps to correct the error as soon as possible.
At McOmber McOmber & Luber, P.C., we urge employees to not assume that the mistake is harmless or unintentional. Employers have legal and financial incentives to misclassify members of their workforce as independent contractors, and they will often push back when an employee asserts his or her rights under the law.
Back Pay And Restoration Of Benefits Are Often Available For Misclassified Employees
Fortunately, employees who believe they are misclassified can seek redress through various means, including a class action lawsuit. The remedies for an employee who successfully establishes that they have been misclassified as an independent contractor include back pay for overtime and minimum wage, as well as the return of unlawful deductions from their paychecks.
What Should I Do If I Have Been Misclassified as an Independent Contractor in NJ?
When an employee believes that they have been misclassified, they should first contact the attorneys at McOmber McOmber & Luber, P.C. to discuss the situation and determine the best course of action.
It is important to note that workers who speak out about their classification status may not be retaliated against with demotion, termination, or any other unfavorable action. If you have been retaliated against following a misclassification, we can help you.
New NJ Legislation Protects Against Unlawful Misclassification
On July 8 of 2021, Gov. Murphy signed into law a legislative package made up of four bills related to the detection and prevention of unlawful misclassification of workers and remedies for workers whose employment has been misclassified.
The new legislation will create a new Department of Labor Office, called the Office of Strategic Enforcement and Compliance, as well as a database for tracking payroll. It will also make it easier to identify misclassified workers and to impose stop-work orders at workplaces where workers are unlawfully being denied the rights of employees.
A 2018 audit conducted by the Department of Labor determined that unlawful misclassification of employment is a widespread problem in New Jersey. After examining only 1% of the businesses in the state, the audit found 12,3000 misclassified workers, $460 million in underreported wages, and $14 million in lost revenue for the state unemployment and temporary disability funds. The new legislation will make it easier to enforce the rules about classifying full-time workers as employees, with all the rights and tax regulations that entails.