Worker classification disputes are common in the state of New Jersey. These disputes can not only have a large effect on things such as a worker’s and an employer’s taxes, but also an employee’s rights to benefits, including workers’ compensation insurance, as well as overtime pay, liability, and more. If you are involved in an employment classification dispute, the attorneys at the Sattiraju Law Firm, P.C.—one of the premier employment law firms in New Jersey—can represent you.
Am I an Independent Contractor or an Employee?
Knowing whether you are a self-employed independent contractor or an employee can be difficult. And in many cases, your employer may wrongfully classify you as an independent contractor, even when you are technically employee, to avoid liability and the requirement to pay certain benefit types.
According to the Internal Revenue Service (IRS), a person is an employee if his or her employer controls what will be done and how it will be done. Furthermore, the National Law Review summarizes the ‘ABC’ test that is used to classify employees. Under the test, an individual can only be classified as an independent contractor in the event that he or she:
- Has been and will continue to be free from direction or control in regards to work performance;
- Performs work for the business that is outside the normal and usual course of business and employee practices; and
- Is engaged in an independently established occupation or trade.
What is the Difference Between an Independent Contractor and an Employee?
In short, the difference is the amount of independence an individual holds. When an individual works as an independent contractor, he or she works for him or herself. When he or she works, it is for a client, not a boss. When an individual is an employee, he or she works for his or her employer. Although it can seem like a fine line to draw, there are actually significant differences between independent contractors and employees when it comes to issues like rights and protections.
Independent contractors work under contracts that outline the job they are hired to perform, the agreed price for the job, and each party’s rights and expectations during and following the completion of the project.
Independent contractors must sign and complete W-9 forms when they begin a project. They also file their own business tax returns and are not eligible for employment benefits such as healthcare insurance and sick days.
Employees are hired to work for a salary or agreed-upon hourly wage. Unlike independent contractors, employees are paid for their time spent working, rather than for individual projects. Employees are hired to perform specific jobs and generally receive training from the company after they are hired.
Employees are eligible for benefits such as workers’ compensation coverage, healthcare benefits, vacation and sick days, and overtime pay. Employees must complete W-2 forms and are not responsible for filing business tax returns, only personal returns.
When an independent contractor is classified as an employee or an employee is classified as an independent contractor, the misclassified individual can face problems with his or her taxes and benefits.
If you are misclassified, contact your company’s human resources department to have yourself correctly classified. In some cases, individuals are deliberately misclassified in an attempt to save money – independent contractors are much cheaper for a company than employees. If this happens to you, contact an experienced employment attorney to take legal action against the company.
What Does an Employment Classification Lawyer Do?
An employment classification lawyer can help you to prove that you are in fact an employee, not an independent contractor, of the business for which you work. This is a common need of those in the trucking industry, drivers, those who work in construction, and workers in other industries where independent contractors are common. An attorney can not only help you to prove your status as an employee, but can also help you to prove that due to your employee status, you are entitled to certain employee protections.
Employment Attorneys in New Jersey
Whether you are an employee or an independent contractor plays a significant role in the protections and rights you are entitled to enjoy. Contact The Sattiraju Law Firm, P.C., to discuss your case with a member of our firm and determine how to proceed with your case given your position. We are one of New York and New Jersey’s premier employment law firms. We will draw upon our extensive record of success to provide you with top quality legal counsel and representation in the courtroom.
Misclassified Workers In New Jersey Infographic
Are You A Worker Or Employee in Princeton, NJ? Below is a detailed cheat sheet on classification & misclassifications
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Additional Mapped Resources for New Jersey Truck & Transport Drivers
Below are a number of additional resources mapped out for transport drivers including:
– New Jersey truck stops
– New Jersey truck service Centers
– New Jersey truck sale centers
– New Jersey employment lawyer’s office
– other New Jersey employment resources
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The misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers and the entire economy.
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
By some estimates, contingent or temporary workers could reach 30%–50% of the U.S. workforce.
A federal study contends that an estimated 3.4 million employees are classified as independent contractors when they should be reported as employees.
A 2009 study by the treasury inspector general estimated that misclassification costs the United States
$54 billion in underpayment of employment taxes and $15 billion in unpaid FICA and unemployment taxes.
Who Controls Whom?
- Generally, if the employer can determine not only the end product, but also the means by which it is
accomplished, the individual likely is an employee.
- If the employer can only dictate the finished product, the individual likely is an independent contractor.
Why Do Employers Misclassify Employees?
The simple answer is money. By classifying a worker as an independent contractor instead of employee, an
employer avoids the following expenses:
- Employer’s share of Social Security and Medicare taxes
- Overtime pay
- Employee benefits, including vacation, holiday, and sick pay
- Unemployment compensation tax
- Workers’ compensation insurance
Independent Contractors, by Class of Worker, 1995-2005
|Percent of Total Employment|
|Driver/sales workers and truck drivers||301,909||120,793||422,702||2,944,690||9.0%||12.6%|
|Total, 16 years and older||8,309||8456||8247||8585||10342|
|Wage and Salary||1,234||1044||963||1156||1375|
|Private, For Profit||1,103||946||876||1031||1240|
|Self-Employed As Percent of Total||85.1%||87.7%||88.3%||86.5%||86.7%|
Common Law Rules
According to the IRS, the facts that provide evidence of the degree of control and independence fall into three categories:
Does the company control or have the right to control what the worker does and how the worker does his or her job?
Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship:
Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Transport Drivers: Classification & Other Challenges
Challenges of the companies: Can they continue to treat many of their truck drivers as “independent contractors” as they have in the past?
- The 273,000 independent contractors BLS estimates work in the truck transportation industry constitute one of the largest distinct groups of IC workers in the workforce.
- This accounts for nearly 14% of all truck transportation workers.
- Among all “driver/sales workers and truck drivers,” the CAWA survey reported a total of nearly 302,000 independent contractors; another 121,000 workers were in other forms of alternative employment arrangements.
Paying Hourly Wages
Many truck drivers have been treated as independent contractors to avoid the costs and complexities of tracking their hours and paying hourly wages, including, where applicable, overtime pay, and also federal and state employment taxes.
This issue came into sharp relief in 2014 when Federal Express lost its appeal in the Ninth Circuit in Alexander v. FedEx Ground Package Sys.
It is expected that the costs to FedEx associated with this decision will exceed $250 million.
Truck driver safety has come under increased scrutiny in the wake of recent serious accidents, including anaccident in New Jersey which caused serious injury to actor Tracy Morgan andanother in Georgia which caused multiple fatalities.
Addressing the Issue Now
Trucking companies should analyze their current independent contractor drivers and make sure that their classification is defensible under IRS guidelines and the recent case law.
The U.S. Department of Labor recently awarded a total of $10.2 million to 19 states for the purpose of improving worker classification compliance.
New Jersey received the 3rd largest total award of $838,621. This sum included the second-largest bonus, $496,399, for its performance in identifying instances of worker misclassification.
In spite of such accolades, New Jersey remains the state with the third-highest rate of improper unemployment insurance payments in the nation.
Consequences of a Princeton, New Jersey Determination of Misclassification
Employers May Be Liable for Penalties
If premiums are paid late, a 1.25% per month interest is added to the total On top of additional principal and interest, penalties may apply.
For failing to timely file NJ-927, an employer is liable for the lesser of $10 per day or 25% of contributions due.
For a late or incomplete WR-30 the penalties range from $5 to $25 per form.
An employer or employer’s officer or agent who knowingly makes a false statement, or fails to disclose a material fact, to reduce the payment of unemployment benefits is liable for the greater of a $100 fine or 25% of the amount fraudulently withheld, per day.
New Jersey’s “ABC Test”
In order to demonstrate that the worker is actually an independent contractor, the employer must now satisfy all three prongs of the ‘ABC Test.’
Employers must show that:
- The worker has been and will continue to be free from control or direction over the performance” of the work he or she is responsible for.
- Such work is either outside the usual course of business for which it is performed, or that it is performed outside of all the places of business of the enterprise for which it is performed, and,
- The worker is customarily engaged in an independently established trade, occupation, profession or business.
Learn More About Employee Misclassification in NJ