Employers Behaving Badly: Part One
Mischaracterizing an Employee as an Independent Contractor
Table of Contents
Worker status is an important issue. The distinction between independent contractors and employees is significant for applying New Jersey Workers Compensation laws. The law covers employees. Independent contractors are not covered. The initial characterization between the two is made by the employer. But is the employer correct in applying one label over another?
There are benefits to the employer of using the label independent contractor. There are no wage withholding requirements for an independent contractor. In addition to no payroll taxes, independent contractors do not participate in company benefit programs, and there is no coverage for their work injuries under worker compensation insurance policies.
With these benefits, however, comes substantial risk. New Jersey has a robust enforcement mechanism to apply penalties and fines to offending companies through the work of the New Jersey Department of Labor and Workforce Development (NJDOL). New Jersey has recently increased the penalties and enforcement mechanisms, including the use of stop-work orders.
How large is the independent contractor workforce in the United States? A recent study by Upjohn Institute reflects that statistical analysis is difficult. This is due to inaccurate descriptions of the working relationship that are common in the workforce. The best estimate is that 6 percent to 7 percent of all workers can be characterized as independent contractors.
It Is All About The (Business) Relationship
The nature of the relationship between the parties determines the proper classification of employee or independent contractor. An independent contractor is essentially a self-employed person who contracts with different clients to provide a specialized service. As such, independent contractors typically maintain a higher degree of control over work schedules, conditions, and the tools used to complete the project. The relationship with each client is typically not permanent but rather project based.
Meet Julia- An Independent Contractor
Julia is a graphic designer working from her home in Atlantic City, New Jersey. Julia contracts her services to several unrelated companies for design work in building a personalized brand for each company. She works from generalized ideas from her clients about what a successful brand image would look like. She personalizes the campaigns of each client based on her expertise. She develops a painful wrist condition known as carpal tunnel syndrome, which her physician links to her work. Julia is an independent contractor responsible for her medical expenses. She may have her own workers compensation policy, however, which would provide her with essential financial benefits.
On the other hand, an employee is traditionally subject to greater control over work hours, work conditions, and work environment. As a result, the employer is held responsible for any work-related injuries that occur.
Meet Josh- An Employee
Josh works for a construction company in Newark, New Jersey. He is on the payroll that reflects tax withholding for the Federal and State of New Jersey. The construction company dictates Josh’s daily tasks, including work hours and safety procedures. All tools of the job are provided by the construction company. Josh is injured one day on the job by malfunctioning heavy machinery. Josh is an employee covered by the workers compensation insurance policy of the company, which should cover his medical bills, lost wages and provide Josh a permanency award if there is a permanent loss of functioning.
Key Factors to Determine Employee v. Independent Contractor Status
How does the Judge of Compensation decide between employee and independent contractor status? Any designation found in an agreement signed by the parties does not answer the question. The Judge is not bound by an independent contractor label used by the parties in any written agreement.
The determination is highly fact sensitive and made by the Judge after examining the nature of the relationship. There is, however, a test used by Courts to make the decision. The most important factors are:
- Who is in control of the work being performed? The manner of work performed and the results to be accomplished reveal much about the nature of the relationship between the parties.
- Are the services provided within the scope of the ordinary course of business operations? The closer the nature of the work to the business itself would weigh in favor of employee status.
- Does the worker maintain other clients or is there an economic dependency of the worker on this business operation? The economic dependency of the worker on this business is a factor weighing in favor of employee status.
How About Casual Employment?
Casual employment status is often closely aligned with independent contractor status. An employer can assert the defense of casual employment and deny workers compensation coverage to the injured worker. New Jersey Workers Compensation law does not cover casual employment.
What is casual employment, however, is narrowly defined. The Court will examine whether the services rendered were either connected or unconnected to the employer’s business. Any judicial determination rendered will reflect the unique facts and circumstances of the case before the Court.
If the employee renders the services in conjunction with the regular operation of the business, then a casual employment label would be appropriate only if the services were only provided by chance or is purely accidental. If the employee renders the services outside of the regular operation of the business, then a casual employment label would be appropriate if services were not regular, periodic, or recurring.
Who is Your Advocate When Injured on the Job?
With a deep understanding of the complex intricacies of workers’ compensation legislation, John F. Renner successfully champions the cases of injured workers in New Jersey. His clients are treated with attention and personalized care tailored to their unique case and work injury. This ethos is the key that unlocks the gateway to the most desirable outcomes. Please contact us at (856) 596-8000.