SAYREVILLE, NJ — Legislation sponsored by Deputy Speaker John S. Wisniewski (D-Middlesex) to address the problem of employee misclassification was passed today by the New Jersey State Assembly. The bill, A1578, is a response to the chronic problem of employers who misclassify employees as contractors resulting in lost state revenues.
“The misclassification of employees improperly deprives employees of protections provided under state and federal law and creates an uneven playing field for law-abiding companies that currently operate under a competitive disadvantage compared to their industry-peers who misclassify,” said Assembly Wisniewski. “This bill will address the inequities that exist under the current system.”
Through misclassification, employers avoid paying Social Security taxes, Medicare, Unemployment Insurance, and Workers’ Compensation premiums. In 2005, the NJ Department of Labor found 28,200 workers misclassified resulting in $625 million in unreported wages. In 2006, nearly 25,000 workers were found to be misclassified resulting in $565 million in unreported wages.
“The current law is unfair to employees and unfair to every business that plays by the rules,” said Wisniewski. “It needs to be changed.”
Currently, an employer classifies whether a person is an employee or contractor using a criteria set by the state and the state must conduct its own investigation to dispute those findings. The present system has led to the widespread misclassification of employees as contractors.
A1578 does not change the distinction between an employee and a contractor. The same standard will be used to make that determination. Under this bill, however, the burden of proof shifts to the company by requiring the company to document that a person meets the criteria of a contractor before they can be classified as such.