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Am I an Employee or an Independent Contractor? A Quick Look at New Jersey's Worker Classifications

Now more than ever before, the lines between being an employee and an independent contractor have become harder to determine. For employers, there has always been the temptation to classify people as independent contractors since there are a number of benefits (or maybe just perceived benefits) to doing so. For instance, employers do not have to pay payroll taxes for independent contractors. They do not have to worry about overtime hours, minimum wage, worker's compensation, etc.

With the growing side hustle economy and the increased work-from-home opportunities since the COVID-19 pandemic, it's easy for employers and workers alike to assume that their job relationship is nothing more than an independent contractor. However, just because you work from home or have a varying work schedule does not mean that you should be classified as a contractor, and increasingly, governmental agencies have begun to take a harder look at worker classifications.

It's important to realize that the test of whether someone should be classified as an independent contractor versus an employee changes for different governmental agencies. How the IRS determines whether someone should be an employee versus an independent contractor is not the same as the United States Department of Labor's test and so on. Different state agencies also have differing determining factors. That being said though, the general questions that comes up in every analysis is how much independence the worker has from the person or organization that is paying and how much control does the payor have over the worker.

In New Jersey, the default rule is if you are performing work for an organization or individual, you are their employee. That means that whether you are full-time, part-time or even per diem, you should be paid through payroll with payroll taxes and other withholdings taken out of your check before you receive it. It also means your employer has a number of legal obligations to you such as paying into your unemployment benefits, properly withholding your state and federal income taxes, and providing worker's compensation benefits if you are injured on the job.

In order to be considered an independent contractor versus an employee in New Jersey, you would have to meet all three prongs of New Jersey's "ABC Test". They are:

  • Such individual has been and will continue to be free from control or direction of the performance of such service, both under their contract of service and in fact;

  • Such service is either outside the usual course of business for which such service is performed, or such service is performed outside of all the places of business of the enterprise for which such service is performed; and

  • Such individual is customarily engaged in an independently established trade, occupation, profession, or business. [N.J.S.A. 43:21-19(i)(6)(A-C)]

Simply put, you are considered an independent contractor in New Jersey if you 1) are not controlled and given directions on how to do your work by the company or person paying you; 2) the work you are doing is not related to the normal services that the business provides or the work is done outside all the places the company does business or provides services; and 3) you are performing work that is part of an independently established trade, business or profession. If you fail to meet any of the three factors, you are deemed an employee under New Jersey law.

Whether you are a worker who is unsure if you are properly classified or you are a business that may have incorrectly classified individuals working for you, it is important to contact a knowledgeable employment attorney to determine the best next steps. If you're an employer or an individual needing help with worker classification, contact me for a free initial consultation. Our firm has assisted a large number of employees and employers alike in determining what their rights and obligations are relating to proper worker classifications, and I would be happy to assist you as well.


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