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The U.S. Department of Labor is teaming up with its New Jersey counterpart to step up enforcement of laws against misclassifying employees as independent contractors. The two Labor Departments signed a memorandum of cooperation Friday for “coordinated investigations and shared resources.”

While not singling out any one industry, the New Jersey Department of Labor and Workforce Development highlighted construction, transportation, information technology, and “other in-demand businesses” as potentially non-compliant.

“The question of who is an ‘employee’ and who is an ‘independent contractor’ is a fact-specific inquiry that depends on a number of factors,” Attorneys James McDonnell and Beth Braddock explain. “Businesses typically do not pay employment taxes, unemployment insurance, or overtime, or contribute payments to the workers’ compensation fund for independent contractors. The state estimates upwards of $80 million in underpaid unemployment and disability taxes since 2010.”

The consequences of misclassifying employees can include federal and state penalties for failure to pay minimum wage and overtime, liquidated damages, and attorneys’ fees, they note. Businesses in New Jersey should review current practices and operations with respect to their use of independent contractors, and may want to conduct a self-audit to identify any problems before the government does.

New Jersey follows the stringent “ABC Test” with respect to the proper classification of independent contractors. N.J.S.A. § 43:21-19(i)(6)(A)-(C). The independent contractor must: (A) be free from control or direction; (B) perform services outside the scope of services offered in the usual course of business; and (C) be customarily engaged in an independently established trade, occupation, profession or business. Accordingly, any review of operations must be in line with the more rigorous requirements under New Jersey law.

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