Date: January 24, 2020

On January 20, 2020, Governor Phil Murphy signed into law a legislative package concerning worker misclassification and exploitation. The law cracks down on employee misclassification by allowing stop-work orders against employers who violate state wage, benefits and tax laws. The new law provides for penalties and requires employers to post a notice for their employees regarding misclassification.

From his first day in office, Governor Murphy has focused on the problems caused by worker misclassification. By misclassifying workers as independent contractors rather than employees, businesses avoid minimum wage and overtime laws, family and medical leave laws, tax withholdings and unemployment insurance contributions. This results in workers being exploited and the State not receiving its fair share of payroll taxes.

Under the new law, employers face an administrative “misclassification penalty” up to $250 per misclassified employee for a first offense and up to $1,000 per employee for each subsequent violation. It also provides for a penalty of not more than five percent (5%) of a worker’s gross earnings over the past twelve (12) months. An amendment also makes an owner, director, officer or manager of the employer liable for violations of the State’s wage and hour laws and employer tax laws.

The take-away: promptly have labor law counsel review your pay practices to ensure your business is not misclassifying workers. Ignoring these obligations exposes companies and executives to penalties and personal liability.