The New Jersey Department of Labor and Workforce Development (NJDOL) reminds employers that misclassifying workers as “independent contractors” instead of employees is an illegal practice, whether intentional or accidental. This misclassification can even occur when an employer requires you to form an LLC or franchise before hiring you.

Why is correct classification important?

In New Jersey, an employee is anyone who works for an employer, except for independent contractors. Employees are protected by multiple labor laws, such as the Unemployment Compensation Act, while independent contractors do not receive these benefits. Therefore, it is crucial to ensure you are classified correctly.

Receiving a Form 1099 instead of a W-2 does not automatically mean you are an independent contractor. To determine your classification, New Jersey uses the ABC test.

The ABC Test

Your employer must demonstrate that all three parts of this test are met. If they cannot do so, you should be considered an employee.

• Part ADoes your employer control or direct how you perform your work? If they give you instructions, set your schedule, tell you what tools to use, can fire you, or determine the order of your tasks, this part is not fulfilled.
• Part BIs your work different from your employer's main business or is it performed off-site? If the service you provide is part of the company's regular business activities or is performed at its workplaces, this part is not met.
• Part CDo you have a trade or business that can operate independently of your employer? This includes, for example, working for multiple clients, paying your own expenses, owning your own tools, or generating income from other sources. If you are almost entirely dependent on a single employer, this question does not apply.

Your rights as an employee

If you should be considered an employee, the law provides you with important protections:

• Minimum wage and overtime pay after 40 hours per week.
• Workers' compensation benefits.
• Right to receive unemployment benefits, temporary disability benefits, sick leave, and family leave.
• Right to organize under the National Labor Relations Act.
• Your employer's contributions to federal taxes, Social Security, Medicare, and state insurance.

Independent contractors, LLCs, or "off-payroll" individuals generally do not receive these protections.

What happens if it was misclassified?

If it is proven that an employer misclassified you, you may be able to obtain:

• Retroactive payment of unpaid wages and overtime.
• Access to all the benefits and protections mentioned.
• Additional compensation of up to 5% of your gross income from the last 12 months.
• Reinstatement or correction of retaliation suffered for filing complaints.

How to file a complaint

You can report the misclassification by calling 609-292-2321 or writing to misclass@dol.nj.govIf your employer is audited, you may receive a form from the NJDOL requesting information about your employment relationship; it is important to complete it accurately.

The NJDOL protects your identity and will not share your personal information with your employer except in very limited circumstances.