New Jersey Targeting Companies Using Independent Contractors

Not only has the new Governor Phil Murphy signed an Executive Order to seek out companies that utilize independent contractors through the creation of a Task Force, New Jersey has just past a law that will govern how the new sick pay rule will be interpreted if a worker is classified as an independent contractor.

The single IC model used by many companies will not pass muster not only with respect to the new sick pay law but also for Unemployment and Disability tax purposes. The statute of limitations in New Jersey, unlike three years in most states, is five years. This combined with the fact that the tax is computed on a much large taxable wage base means significant tax assessments, penalties and interest if a company is audited by the New Jersey Department of Labor Task Force. While there is no magic bullet, there are still ways in which a company can better mitigate their risk and thus position themselves for passing the litmus test.

As part of New Jersey’s new sick pay law (beginning Oct. 29) requiring employers of every size (including temporary agencies) to provide one hour of sick leave for every 30 hours worked, the New Jersey Department of Labor and Workforce Development has proposed making the so-called “ABC Test” the only classification tool for determining if a worker is eligible for paid sick leave. That said, if a company fails the ABC Test then it is liable for paying sick leave, unemployment and disability taxes to those previously classified as independent contractors.

The ABC Test first gauges an individual’s freedom in control over performing his or her work. Secondly, it examines if that work occurred outside the usual course of the business where the service was performed. Lastly it considers if the worker is in an independently established trade, occupation or business. A company must pass all three prongs of the test. If a company passes A and B but not C, the company fails the test.

This could have far reaching implications! As seen in California, the California Supreme Court ruled that if you cannot meet the “B” Prong of the ABC Test, where if the services performed are not outside of the usual course of the business for whom the services were performed, then individuals are considered employees.

Additional amendments past last month in New Jersey have generated even more red tape for companies to obtain exemptions previously available for specialized services using independent contractors. Now, companies are at risk of audits if they receive an adverse ruling. Criteria for classifying independent contractors as such has never been stricter!

Need help navigating these upcoming changes and protecting your company from undue risk? Preferred IC Consultants can help. Give us a call at (800) 769-2994.

Another risk mitigating service providing by our sister company is providing a non-auditable Workers Compensation insurance program combined with Occupational Accident and Contingent Liability with the same A+ Rated insurance carrier.

Check us out at consultechclaims.com and choiceadvisorygroup.com or call us today.

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