If you’re a contractor in New Jersey, it’s worth paying attention to some recent changes that alter the landscape. If you’ve been in the contracting world for some time, you’re likely aware of the important distinction between an employee and an independent contractor.
A new ruling that came down earlier this year indicated that in order to address issues of worker misclassification, the “ABC” test will be used to determine whether an individual is truly an employee or an independent contractor. The default is that a worker is classified as an employee unless the use of this test determines that the individual is actually an independent contractor.
The ruling was handed down by the New Jersey Supreme Court helps to clarify issues that pop up often in misclassification cases. The test makes it harder for employers to prove that a worker is not an employee. The ruling is additionally noteworthy because it follows the bigger nationwide trend to deal with misclassification cases.
New Jersey is not alone in applying the ABC test, either. More than 20 states already have some kind of test in place to help determine whether a person is an employee or an independent contractor. Being misclassified could mean that you’re missing out on some of the benefits that should be provided to an employee.
As mentioned above, the test assumes that a worker is an employee except in cases where:
- The individual has direction and control over the performance of the service they provide, both when it comes to practice and the contract
- The involved individual engages regularly in an independently established occupation, trade, or business
- The service provided by the individual is either outside the typical course of business or provided away from the company’s premises.
Clearly, there’s a trend across the country related to the rise in worker misclassification cases, and this test is an attempt to make it easier. Small business owners and independent contractors should pay close attention to the above stipulations, because being misclassified could cost a company in a big way.
Misclassified workers could lose key benefits that they should be entitled to under an employer-employee relationship. Sometimes, an employer might honestly not realize the misclassification, but other times the attempt to categorize someone as an independent contractor is done willingly in order to deny these benefits. Some of the benefits linked to the employer-employee relationship include having a portion of employment taxes paid by the employer, overtime pay, workers’ compensation insurance, or health benefits.
It’s definitely a good idea for independent contractors to be informed about these issues, but small business owners stand to lose a lot if they are not familiar with the costs. An employer who accidentally misclassifies an employee could have to pay that employee down the road. If the court determines that an employee should have been classified as an employee, back taxes, health benefits, workers’ compensation fines, and overtime wages can all rack up quickly for an employer.