Larger Penalties for Employee Misclassifications in New Jersey
Update Applicable to:
All employers who operate and have employees in New Jersey.
On July 8, 2021, Governor Phil Murphy signed bills A5890/S3920, A5891/S3921, and A5892/S3922 into law.
What are the details?
With A5890/S3920, effective immediately, the New Jersey Department of Labor and Workforce Development (NJDOL) is authorized to shut down a workplace that is found to have violated the Unemployment Compensation Law (UCL) and levy fines for each day the employer ignores the NJDOL’s order.
New Jersey businesses can be issued a stop-work order and an indefinite suspension of business operations if they fail to pay UCL contributions. The order would encompass all locations and not a single location and the NJDOL can also assess a civil penalty of $5,000 per day for each day the employer conducts business in violation of the stop-work order. A request for a hearing challenging the stop-work order does not stay the effectiveness of the stop-work order. Businesses that receive a stop-work order must pay its employees for the first 10 days of the order.
Failure to maintain wage records may trigger a permanent ban on a company’s New Jersey operations and a fine of not less than $1,000 per day until the employer gets into compliance.
The second law, 5891/S3921, creates the Office of Strategic Enforcement and Compliance, which will investigate claims of employee misclassification and coordinate strategic enforcement efforts both within the NJDOL and across other state agencies. To be considered in substantial good standing with the state, an employer must have no outstanding liabilities for unpaid contributions into the Unemployment Compensation Fund. Businesses with any outstanding liability will receive no business assistance from NJDOL and their status with the NJDOL will be reported to other state agencies.
The third law, A5892/S3922, effective January 1, 2022, streamlines the process for identifying unlawful employee misclassification, and provides that businesses that misclassify employees commit insurance fraud. An employer that is found to have “purposely” or “knowingly” misclassified its employees violates the New Jersey Insurance Fraud Prevention Act and is subject to fines starting at $5,000 for the first violation, $10,000 for the second violation, and $15,000 for each subsequent violation. An adverse finding under this law will trigger an investigation by the New Jersey Department of Banking and Insurance (“NJDOBI”).
An article on the new bills can be read here.
What do employers need to do?
Employers should review the laws and the information above to continue to stay in compliance in their employee classification and unemployment compensation processes.