We represent employers in all aspects of employment law. One of the most important – and contentious – areas is the classification of workers as independent contractors versus employees. The United States Department of Labor, for example, estimates that 10 to 30 percent of all workers are misclassified.
The economic consequences of this classification are important to the employer, the worker, and the tax authorities. If a worker is an independent contractor, then the employer avoids significant expense because it does not have to pay payroll taxes or benefits; employees, on the other hand, incur significant expense because independent contractors, unlike employees, have to pay self-employment tax. Likewise, independent contractors typically do not get benefits like health insurance, and are not required to receive “time and a half” pay for overtime work. The taxing authorities, federal and state, are concerned because the classification affects the total amount they will collect in taxes. Likewise, the federal and state labor departments enforce the requirements to properly classify employees. Violations can cause significant fines, penalties, and back taxes. Indeed, New Jersey’s Construction Industry Independent Contractor Act provides civil and criminal penalties for construction employers who misclassify their employees.The most important factor in determining whether a worker is properly classified as a contractor or employee is the “control test” - Whether the employer controls the means, manner, time and place of the work the worker performs. Some of the other factors which determine the outcome include:
McLaughlin & Nardi’s employment attorneys represent management in audits by the New Jersey Division of Taxation, New Jersey Department of Labor and Workforce Development, and the Internal Revenue Service. We also represent management in defense of suits by workers who claim they were misclassified and not paid wages, overtime, minimum wage, or benefits.
More importantly, we help companies plan so they can avoid misclassifying workers. Prior planning to avoid problems is the best defense to claims that workers were misclassified. A well-drafted independent contractor agreement – from truck drivers, to doctors, to scientists – is the best way to avoid problems.
Our employment lawyers are experienced at representing employers in classification audits with governmental authorities, and in misclassification suits by employees. E-mail us or call (973) 890-0004 to obtain assistance.