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Small businesses would not be able to use contractors for their non-essential tasks like payroll or janitorial services under legislation that has cleared both the Assembly and Senate labor committees.

This morning, the Assembly Labor Committee released A-5936 (Egan, D-17), while the Senate Labor Committee advanced S-4204 last Thursday. NJBIA Vice President Mike Wallace testified against both bills.

“This bill would hit small businesses especially hard because they would be unable to use contractors for their non-essential tasks that large companies can do in-house, like payroll or janitorial services,” Wallace said. “Larger corporations usually handle such tasks in house, but for many small businesses, the cost doesn’t allow for it.

“Additionally, businesses would find it hard, if not impossible, to hire temporary workers to meet peak demand,” Wallace added. “Businesses either would have to maintain peak staffing at all times or be unable to meet their customers’ needs when demand is high.”

Specifically, the bill would change New Jersey’s ABC test, which the state Department of Labor uses to determine if contractors are truly independent or if they should be full-time employees of the company.

Under the bill, the new ABC test would require independent contractors to:

A: be free from control or direction over the performance of that service, both under the contract of service and in fact; and

B: do work outside the usual course of the business for which the service is performed; and

C: be customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the work performed.

The key change is to prong B that would require that all contract work to be “outside the usual course of business,” Wallace explained. Under the current test, people could qualify as independent contractors if they also do work outside the company’s usual places of business.

Ride-sharing companies like Uber and Lyft and other gig economy work would be jeopardized as well.