“1099” Misclassification Laws

“1099” Misclassification Laws 2560 1707 Balance Point Team

BPHR’s Director Lisa Salcido, SPHR, SHRM-SCP provides answers to your pressing HR questions.

Question: I plan to hire 1099 contractors, what do I need to know about New Jersey’s new laws?

Answer: In May of 2018, New Jersey created a task force to investigate the misclassification of employees as Independent Contractors or “1099s” to recover state taxes, unemployment contributions, employee overtime and benefits and to implement fines and penalties on behalf of improperly classified employees.

In July of 2019, the task force released a report on their findings. Among them:

  • Misclassification is the practice of illegally and improperly classifying workers as independent contractors, rather than employees. This practice has increased by approximately 40% in the last ten years and is a growing problem in New Jersey.
  • Labor violations may be referred for criminal prosecutions. “Nothing sends a more powerful message to employers who break the law than the possibility of jail for mistreating workers.”
  • The Department of Labor will use their power to revoke or suspend licenses to deter employers from not complying with labor laws.

As a result of the task force’s report, Governor Murphy signed new laws designed to protect workers and penalize employers.

The New Jersey “1099” Misclassification Laws affects all size employers and became effective upon Murphy’s signing of the package on January 21, 2020. The independent contractor classification is determined by law, not preference. There is specific criteria about who can and cannot be classified as a contractor. It is unlawful for an employer to misclassify an employee as an independent contractor.

Some key points from the new laws:

  • The NJ Department of Labor and Workforce Development has been granted authority to investigate violations, subpoena payroll and tax records, interview employees and issue stop-work orders.
  • Employers are required to post a notification that explains how employees can file a possible misclassification charge. The poster was released in May 2020. You can access it here.
  • Penalties for misclassifying workers have been raised to $250 for a first violation and up to $1,000 per misclassified employee.
  • The names of employers who have violated the laws will be posted on a public website.

Update 7/8/21: Governor Murphy signed new legislation into law to further the state’s efforts. These laws simplify the process of identifying misclassification and ordering stop-work orders at worksites with misclassification by creating a new office to address the matter and crafting a database to track payrolls.

Are You Confident in the Classification of Your Employees?Protecting Your Organization from Worker Misclassification

Regardless of your intent, misclassifying employees carries hefty penalties. Making the determination between contractor and employee can be tricky. Learn the nuances and what you need to know to protect your organization in our resource: Protecting Your Organization from Worker Misclassification.

With BPHR, an HR Generalist will work with you to ensure your organization is in compliance so you can focus on more strategic tasks. Schedule your free phone consultation today to learn how your organization can benefit from our services. Have a question for Lisa? Email her directly.

The material presented on this page is for informational purposes only and does not constitute legal advice or legal opinion. 


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