By Lía Fiol-Matta, Esq., Ty Hyderally, Esq.
Are you or someone you know an independent contractor in New Jersey? If so, we have good news! The New Jersey Legislature is expected to pass Senate Bill 67 (also known as the Portable Benefits Act for Independent Contractors (the “PBA”)), in the not too distant future. The PBA, originally introduced in January 2018, passed in the Senate Labor Committee and was referred to the Budget and Appropriations Committee, where it will likely succeed. If passed, Governor Phil Murphy is expected to sign the bill before the end of the year.
Are you an independent contractor? According to the Internal Revenue Service (“IRS”), if you are self-employed, you are an independent contractor. Some of the variables that affect whether you are considered an employee, as opposed to an independent contractor, have to do with whether or not you provide services to an employer and the level of control over what you do and how you do it. The general rule is as follows: if the company or person who pays you has the right to control or direct only the quality or result of your work, but not how you do it, you are likely an independent contractor. As an independent contractor, you are required to pay your own Social Security and Medicare taxes and you are not eligible for employee benefits, to include but not be limited to health insurance, sick leave, state disability insurance, workers’ compensation insurance, and unemployment insurance.
In New Jersey, the test to determine whether an individual is an independent contractor or an employee is known as the “ABC Test”, which starts with the presumption that a worker is an employee, unless an employer can establish the existence of three factors, all of which must be present: (1) the worker is free from control or direction regarding the performance of their services; (2) the worker performs work that is outside of the employer’s usual course of business; and (3) the worker is usually engaged in an independently established trade, occupation or profession, similar to the work performed by the employer.
Unfortunately, a growing number of employers intentionally misclassify employees as independent contractors in an effort to save money, creating major issues for workers regarding workplace benefits and legal rights. According to the Report of Governor Murphy’s Task Force on Employee Misclassification (July 9, 2019), 12,315 New Jersey employees were improperly classified as independent contractors as opposed to employees in 2018, limiting workers’ access to essential legal protections afforded to employees in the state.
The PBA alleviates somewhat the inequities that result from employers hiring independent contractors instead of employees, as well as intentionally misclassifying employees. Under the PBA, any entity that uses 50 or more independent contractors in 12 consecutive months in New Jersey must contribute funds to a qualified benefit provider for the benefit of independent contractors. These contributions will create funds to provide portable benefits to independent contractors, such as workers’ compensation insurance, health insurance, paid time off, and retirement benefits. Independent contractors, entitled to benefits under the PBA, must select a qualified benefit provider and will have the option of changing that selection once a year. The entities that seek to become qualified benefit providers must be nonprofit organizations, of which at least one-half of the board of directors must be workers or representatives of worker organizations. The nonprofit organizations must be independent from all business entities, corporations, or others with a financial interest in conflict with that of the workers. The sole purpose of the qualified benefit provider must be to maximize benefits to the covered workers.
The bill requires the Department of Labor and Workforce Development to establish rules to implement and administer the bill, which will provide department remedies for a contracting agent’s failure to comply with required contributions to a qualified benefit provider, as well the right of an independent contractor to file a lawsuit against a contracting agent for their failure to comply with the contribution requirements. The bill does not cover sales representatives or individuals subject to a collective bargaining agreement that dictates wages and other terms and conditions of employment.
Independent contractors in New Jersey have a brighter future to look forward to upon Governor Murphy’s signing of the much awaited Portable Benefits Act for Independent Contractors.
This blog is for informational purposes only. It does not constitute legal advice, and may not reasonably be relied upon as such. If you face a legal issue, you should consult a qualified attorney for independent legal advice with regard to your particular set of facts. This blog may constitute attorney advertising. This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state of jurisdiction.