When you own a business, hiring someone to complete work for you can be an important milestone and a sign that your business is growing as planned. However, it is extremely important to closely analyze how any workers should be classified under New Jersey law. A worker can generally be classified in two ways: as an employee or as an independent contractor.
Why Classification is so Important
There are many laws that are relevant to employment both on the New Jersey state level and the federal level. In addition, many employers must meet several requirements that companies using independent contractors do not. The following are some requirements if you have employees in NJ:
- Comply with minimum wage, overtime, and other wage and hour laws;
- Abide by anti-discrimination and harassment laws;
- Carry adequate workers’ compensation insurance;
- Carry adequate unemployment insurance;
- Take payroll deductions and pay payroll tax.
If you hire independent contractors, however, most of the above requirements will not apply to you as you can set your own terms of payment with the contractor and you have no obligations for insurance coverage or anti-discrimination protections.
If you misclassify workers as independent contractors when they are truly employees, you can face penalties and liability if you fail to comply with the legal requirements and protections that employees are afforded under the law.
Determining the Right Classification for Your Workers
There is no single test that every business owner can use to classify workers. However, there are some signs that a worker is an independent contractor instead of an employee, including:
- They set their own hours or timeline for job completion;
- They supply their own materials, tools, and equipment;
- They provide services for different companies and are not dedicated to only your company;
- They do not provide an essential function for your company to exist;
- They may earn a profit or loss by performing their work.
While every situation is different, classification often comes down to the amount of control that you, as a business owner, has over the worker. The more control you have, the more likely they should be classified as an employee and vice versa.
Call 732 238-8686 today for more information.
Correct classification of workers is essential to avoid legal problems. If you are unsure of how to classify your workers or if you need any other assistance with business-related matters, do not hesitate to contact the lawyers of Bowne Barry & Barry to learn more about our business consulting services today.
