TRENTON – An Assembly panel advanced a bill this week sponsored by Assembly Democrats John Wisniewski, Vincent Prieto, Thomas P. Giblin and Annette Quijano that would prevent certain trucking companies from misclassifying their employees in order to avoid paying payroll taxes.
“By misclassifying workers, an employer can avoid paying certain taxes like Social Security, Medicare and unemployment. This is not the way to do business,” said Assembly Deputy Speaker Wisniewski (D-Middlesex). “This bill spells out what constitutes an employee versus an independent contractor to prevent unscrupulous companies from denying employees the benefits and protections they are entitled to.”
There can be strong financial incentives for employers to skirt the law and misclassify workers. Up to 30 percent of payroll costs may be avoided, making it difficult for businesses that comply with the law to compete with those that purposely misclassify their employees.
The Obama administration estimated in 2010 that cracking down on misclassification could bring in $7 billion over a decade in additional payroll taxes and penalties nationwide. New Jersey has its own share of this problem. In 2005, the NJ Department of Labor found 28,200 workers misclassified and more than $625 million in unreported wages. Similar efforts the following year found nearly 25,000 workers who were misclassified and identified $565 million in unreported wages.
The bill (A-1578) would create a presumption that a work arrangement in the drayage trucking or parcel delivery trucking industries is an employer-employee relationship unless the party receiving the services can overcome the legal presumption of employment. Under the bill, trucking services performed by an individual in these industries for pay would be considered employment, unless, and until it is shown to the satisfaction of the Department of Labor and Workforce Development, that:
· the individual has been and will continue to be free from control or direction over the performance of that service, both under his contract of service and in fact;
· the service is either outside the usual course of the business for which the service is performed, or the service is performed outside of all the places of business of the employer for which the service is performed; and
· the individual is customarily engaged in an independently established trade, occupation, profession or business.
“Companies that knowingly misclassify their workers are denying employees benefits they are entitled to, including the right to workers’ compensation and protection under minimum wage and overtime laws,” said Assembly Budget Chairman Prieto (D-Bergen/Hudson). “It’s unethical, and with this bill, it will be illegal.”
“Healthy competition is good for business, but companies that partake in this practice are giving themselves an unfair advantage over those companies that operate legitimately,” said Giblin (D-Essex/Passaic). “This bill ensures that companies do not hinder competition by cutting corners.”
“The number of misclassified employees and unreported wages in New Jersey is startling and demands better control of this growing trend,” said Quijano (D-Union). “Employee misclassification only benefits the employer, while saddling workers and the competition. It’s wrong and it must stop.”
Under the bill, an employer who purposely misclassifies an employee as an independent contractor would be subject to criminal penalties. Employers who classify an individual who does not meet all three prongs of the three-prong system as an independent contractor would be a violation of the bill. The bill would also prohibit employers from requiring or requesting that an individual enter into an agreement or sign a document which results in his or her misclassification as an independent contractor or otherwise does not accurately reflect the employment relationship with the employer.
The bill was released 6-3 on Monday by the Assembly Labor Committee.