New Jersey is taking steps to further crackdown on what's been called a "scourge" in the construction industry as well as other sectors of the economy: Worker misclassification or payroll fraud.
As Construction Citizen readers who have followed the issue are aware, worker misclassification is the illegal practice of designating an employee as a "1099 worker" or an independent contractor when, by law, they should be classified as an employee. There are, of course, legitimate uses of contract labor. But unscrupulous employers abuse the designation to avoid paying payroll taxes, unemployment tax, or workers’ compensation insurance and are therefore able to submit lower bids for projects, undercutting responsible contractors.
The New Jersey Department of Labor and U.S. Department of Labor recently signed a joint agreement to step up efforts to protect employees from illegal misclassification as independent contractors.
A website called Transport Topics has the details of the agreement:
The agreement between federal and state officials comes after a report last month from a task force appointed by Democratic Gov. Phil Murphy. The report concluded that in 2018, the state’s DOL employer accounts section found that 12,315 workers were misclassified, $462 million in wages was underreported, and $14 million in unemployment, disability and family leave insurance was underreported.
The report said that federal studies and state-level agency audits, along with unemployment, insurance and workers’ compensation data, indicate that 10-30% of employers misclassify at least one employee as an independent contractor.
“Workers misclassified as independent contractors are ineligible for the wage and overtime protections afforded to employees, and can find themselves underpaid and without basic labor and OSHA protections,” state DOL officials said.
The site also quoted an attorney named Greg Feary, a partner with the law firm of Scopelitis, Garvin, Light, Hanson & Feary, P.C., who attributed the move to organized labor.
“It’s political and union-inspired,” Feary told Transport Topics. “The misclassification issue tends to be a blue state-red state issue. New Jersey, along with California, Washington and Illinois are examples of blue states that are being very aggressive on the issue of misclassification, and trucking is among the top industries they’re looking at.”
“Whether you want to be an independent contractor or not, the state has said we’re going to extend the social welfare umbrella over to protect you,” Feary added.
There are Republican-led states, however, that have enacted laws to deal with worker misclassification. Texas, for example, in 2013 passed a law aimed at cracking down on the practice when it comes to taxpayer-funded construction. Colorado, where Republican and Democrats are thought to be more competitive, has a task force designed to “coordinate with relevant state agencies to share information and streamline investigations around alleged misclassification of workers" and will "coordinate with business, labor and community groups.”