Murphy Threatens to Shut NJ Businesses That Cheat Workers
Gov. Phil Murphy is threatening to force companies out of business that persist in misclassifying employees as independent contractors, which he says denies workers full benefits, shortchanges the state treasury, and hurts honest businesses.
Stepped-up enforcement is being planned, including through a task force of 12 state officials Murphy established Thursday that will help in coordinating those efforts.
“Let there be no doubt: If you practice 1099 fraud, we are going to either bring you into compliance, or we are going to put you out of business,” Murphy said at an event Thursday at a Northeast Regional Council of Carpenters training facility in Edison.
Form 1099 is the IRS form for reporting the earnings of independent contractors, as opposed to the W-2 form used for regular employees.
Murphy said employees misclassified as independent contractors are robbed of wages, workers’ comp, family leave, unemployment insurance and safe workplace protections.
“Now there’s only one reason and one reason only why an employer will purposely misclassify an employee as an independent contractor, and that is to exploit that worker,” Murphy said.
John Ballantyne, executive secretary-treasurer of the Northeast Regional Council of Carpenters, said a 2016 report from Stockton University estimated New Jersey’s underground construction economy could be more than $1 billion and involve 35,000 workers.
“It hurts workers,” Ballantyne said. “It hurts honest, law-abiding businessmen that can no longer complete within our industry against such unscrupulous practices.”
The report estimated that the state loses more than $20 million a year in income taxes, some from workers paid entirely under the table, and more than $6 million in unemployment taxes.
The misclassification of employees as independent contractors isn’t limited to construction, though, and Murphy’s executive order cites audits that show estimate the total loss of state tax collections could exceed $500 million.
Even before the task force was created, the state Department of Labor and Workforce Development added staff to its Construction Worker Enforcement Unit, talked with state Attorney General Gurbir Grewal and consulted federal officials and those in other states on the issue, said Commissioner Robert Asaro-Angelo.
“We have seen firsthand how misclassification adversely affects workers, taxpayers and employers who play by the rules,” said Asaro-Angelo, who said employers who do misclassify workers intentionally are “cheating their fellow New Jerseyans out of hundreds of millions of dollars in the state treasury.”
The state formed a similar task force in 2008 under then-Gov. Jon Corzine. This time will be different, Murphy said.
“We expect and you should expect this is going to have teeth. This will have consequences for the folks that are not playing by the rules,” said Murphy, who said he hopes for quick actions to send a message.
Murphy said it’s a matter of better enforcement, not a need for new laws.
“Our backs have been turned on this illegal practice, and we’re saying today those days are over – definitively over and done,” he said.