What is an Independent Contractor – Really?

By Chakeema Cruickshank, Staff Writer

In 2020, Governor Phil Murphy signed five bills aimed at addressing the misclassification of independent contract workers. Misclassification is the practice of improperly classifying employees as independent contractors.  A few months after, the COVID-19 pandemic hit, leading to an increase in independent contractor roles fueled by uncertainty, high unemployment, and the need for flexibility. However, what exactly is an independent contractor? This is a timely topic since 4 additional bills were signed into law this year making more changes aimed at worker misclassification.

 Independent Contractor or Employee?

 Independent contractors can either be business owners or a contractor that provides services to a business, such as an Uber or delivery driver. As the employment world changes and new legislation arises, employers may face new challenges when hiring contractors. Therefore, it is critical for employers to decide whether an individual is an employee or independent contractor. Unlike with employees, employers do not have to withhold or pay any taxes on payments to independent contractors. A general rule to follow is that an individual is an independent contractor if they have the right to control or direct the result of their work, instead of what and how their work will be done.

The four new bills build upon previous legislation to target employer misclassification. In order to hire an independent contractor, it is key to know about them.

Stop-Work Orders (A5890)

 The first bill, A5890, deals with enforcing employee misclassification and stop-work order laws. It simplifies the process for identifying misclassified workers and implements stop-work orders at sites where misclassification has happened. The Commissioner of the Department of Labor and Workforce Development (DOL) receives additional enforcement options in situations where state wages, benefits, or other tax laws are violated. Moreover, this bill increases monetary penalties and includes penalties of $5,000 per day for a failure to comply with a stop-work order. Obviously, a stop work order could be devastating to a company’s timeline for project – and its income.

Office of Strategic Enforcement and Compliance (A5891)

 Under the second bill, A5891, a new Office of Strategic Enforcement and Compliance within the Department of Labor was created. This office will be funded with one million dollars in order to create a database to track payroll projects. These payroll projects are  key for the Department of Labor to track and eliminate misclassification. Coupled with the other bills, this Office is supposed to ensure enforcement and compliance of these legislative changes. As with many government bureaucracies, its efficiency and effectiveness may be problematical.

Streamline of Information (A5892)

 The third bill works to streamline the identification of employee misclassification and simplify the process. This gives additional resources and authority to the Department of Banking and Insurance and provides information to the Bureau of Fraud Deterrence, and the Commissioner of Banking and Insurance. More specifically, this law tackles the misclassifying of employees for insurance purposes. This is now a violation of the state’s Insurance Fraud Prevention Act.

 Statewide Database (A1171)

 The final bill in this package, A1171, creates a statewide database of payroll information for contractors. This requires contractors to provide payment and withholding information. This database will be public and accessible from the DOL’s website. This attempt at forced disclosure of employee information may enable employees to “bid” for their services between different contractors.

Overall, this package of bills aims to convert independent contractors in New Jersey into employees or entitled to receive benefits such as overtime pay, worker’s compensation, and disability. One certain result is adding to employer costs and leaving them in difficult or confusing situations.

But misclassification of an employee is a costly mistake which can lead to costly litigation. As a rule of thumb, it is important for employers and those that hire independent contractors to be educated on the difference between an independent contractor or employee. If an employer finds himself looking to hire an independent contractor, it is important to review misclassification rules and consult with a knowledgeable attorney if needed.

Moving forward, it is imperative for both independent contractors and employers looking to hire them to know the new laws and regulations.  As the independent contractor industry grows, the laws surrounding it will change as well.

Staff Writer Chakeema Cruickshank is currently a first year at Rutgers Law School Camden. Prior to Rutgers Law, she worked for United States Senator Robert Menendez doing constituent relations and outreach for education, environment, and technology.