NJ Treasury Makes Gains in Fight Against Employee Misclassification

Collaboration across State agencies key to coordinated improvements.

TRENTON – In response to a report issued by Governor Murphy’s Task Force on Employee Misclassification, the New Jersey Department of the Treasury has made significant strides to deter misclassification by organizations that do business with the State in order to help address the underlying causes that lead to ever-widening income inequality.

“Ending employee misclassification is a whole-of-government effort, because building a stronger and fairer New Jersey requires employees having access to the benefits and protections they rightfully deserve,” said Treasurer Elizabeth Maher Muoio. “I’m proud of the work done by Treasury’s divisions, and am encouraged that ongoing innovation and collaboration with the Department of Labor and Workforce Development will continue to improve compliance with employee classification regulations.”

The Governor’s Task Force was led by Department of Labor and Workforce Development Commissioner Rob Asaro-Angelo.

“Dedicated partners like the Department of the Treasury are helping protect New Jersey workers and businesses from unscrupulous employers every single day,” said Labor Commissioner Robert Asaro-Angelo. “Because of the Murphy Administration’s collaborative approach to problem-solving, New Jersey is united in its effort to end misclassification and ensure that contributions are properly paid to the unemployment trust fund – so benefits are available to the workers who rely on it in a time of crisis – as we’ve witnessed this past year.”

Misclassification is the practice of illegally and improperly classifying workers as independent contractors, rather than employees. This practice has increased by approximately 40 percent in the last 10 years, and is a growing problem in New Jersey (and other states). Misclassification can lead to declining wages, eroding benefits, inadequate health and safety conditions, and widening income inequality.

It also results in reduced State income tax revenues and unemployment insurance contributions. According to a 2019 report by the Stockton University William J. Hughes Center for Public Policy, the State did not capture up to $12.1 million in income taxes from off-the-books employment in 2017. The report also projects between $1.1 and $4.4 million in foregone unemployment insurance payments in the same year.

Treasury had robust representation on the Governor’s Task Force, established in May 2018 through Executive Order No. 25, with participating members from its divisions of Taxation, Purchase and Property, Revenue and Enterprise Services, and Property Management and Construction.  The following actions taken by Treasury divisions are based on recommendations from the Task Force’s report:

• Targeted Construction Contracting Notification –The Division of Property Management and Construction added language to its Standard General Conditions for construction bidding and issued a bulletin on the requirements. Additionally, the Division underscores employee classification laws at the top of request for proposals (RFPs). The Department of Labor and Workforce Development (DOL) has the authority to investigate potential violations of these laws and issue penalties and stop work orders to employers found to be in violation of the laws.
• Strengthening State Contracting — For contracting of goods and services, the Division of Purchase and Property added language to the Standard Terms and Conditions of the bid solicitation. Vendors wishing to do business with the State must affirm their awareness of State employee classification laws and abide by such laws. DOL has the authority to investigate potential violations of these laws and issue penalties and stop-work orders to employers found to be in violation of the laws.
• Interagency Coordinated Enforcement –Points of contact have been established and utilized between the Division of Taxation and Department of Labor to investigate potential instances of misclassification.  Protocols are in place for continued and active cooperative efforts between both agencies.
• Data Sharing — The Division of Taxation has provided DOL with data to enhance efforts in identifying potential instances of misclassification.  In addition, as a result of the statutory provision that was enacted as a result of the Task Force, Taxation was able to provide DOL with data to assist in the administration of several COVID-19 related programs.
• Cross-Training — DOL conducted training on worker misclassification for approximately 150 Division of Taxation employees. The training provided Collection and Enforcement investigators and Taxpayer Services staff with the information needed to identify and address instances of worker misclassification. The Division will continue misclassification training as a part of the core training that is provided to all new field investigators.

Additionally, the Division of Revenue and Enterprise Services continues to work with the DOL employee misclassification team to review new business registrations to help deter and reduce employee misclassifications.