Understanding Employee Misclassification & New Jersey Assembly Bill 5892
Misclassification of an employee, when done for the purpose of avoiding paying employment-related benefits or taxes for that person, is a violation of the New Jersey Fraud Prevention Act. This stipulation went into effect in New Jersey on January 1st, 2022, in Assembly Bill 5892.
Keep reading to learn more about why employers should be aware of the risks of employee misclassification and Assembly Bill 5892.
ABC Test Assessment and Other Metrics
When a worker claims to be an employee who is being treated as an independent contractor, it is the employer—not the worker—who bears the burden of proof otherwise.
Assembly Bill 5892 requires that an employer be able to prove with a measurable test that a worker is not an employee. The ABC test, which is used in NJ, varies from other testing standards that are used. For example, the Internal Revenue Service uses its own 20-factor test, and the Department of Labor uses the Economic Realities test. There are also other tests used alone or as a hybrid of these tests.
While courts and agencies will consider various criteria in suits and claims about employee misclassification, there is one overarching, most critical factor that they all consider. That factor, which runs through all testing types, is who, in practice, has the right to control the worker or how the work is performed.
In New Jersey, a worker qualifies as an employee—meaning they may be offered benefits and appropriate taxes are paid—unless the employer proves they meet ALL the following criteria in the ABC test:
A. The worker has been and will continue to be free from control or direction over their performance of the work, both within the actual contract for work and in practice.
B. The service provided by the worker is either outside the company’s usual course of business, or that service is being performed outside of all the places of business of the entity for which that service is being performed.
C. The worker is customarily engaged in an independently established trade, occupation, profession, or business.
The New Jersey Department of Banking and Insurance investigates misclassifications for the State. The commissioner can issue civil penalties against a New Jersey employer who misclassifies workers, and the Office of the Insurance Fraud Prosecutor can bring charges against them.
Considerations for Classifying Your Workers
To further understand employee misclassification and Assembly Bill 5892, consider the following regarding each member of your team:
- Can your New Jersey company satisfy the ABC test regarding your independent contractors?
- For workers who qualify as employees, are you paying required overtime, employee benefits, and payroll taxes?
- To avoid court costs, have you considered including mandatory, binding, alternative dispute resolution provisions in employee and independent contractor agreements?
- Have you engaged counsel to complete a wage and hour audit to identify your current compliance with employment laws and the ABC test?
Learn More About Employee Benefits with benefEx
To discuss properly classifying your workforce and any impact on employee benefits, contact benefEx today. We are industry-leading experts with decades of experience, and we’re here to help your business thrive!