Recently, the New Jersey Department of Labor & Workforce Development (DOLWD) announced that it has entered into a memorandum of understanding (MOU) with the US Department of Labor (US DOL) to share information and coordinate enforcement efforts as they pertain to an employer's incorrectly treating employees as independent contractors. New Jersey is now one of 44 states that have agreed to share worker misclassification information with US DOL.

Purpose of the federal-state labor department MOU

The purpose of this MOU is to form a partnership to more effectively and efficiently communicate and cooperate in areas of common interest, to share training materials, to provide employers and employees with compliance assistance information, to conduct coordinated investigations and share information, as appropriate.

Also of interest are governmental revenues lost due to the failure to withhold and/or pay Social Security, Medicare, unemployment insurance or other similar employment taxes as a result of the worker misclassification.

According to the New Jersey DOLWD, "By misclassifying workers as independent contractors — workers who file 1099s, not W2s — employers avoid paying unemployment and disability taxes, costing state and federal taxpayers untold millions of dollars. In New Jersey alone, auditors have identified more than $80 million in underreported employer contributions since 2010.

"In New Jersey, we promote fairness and fight discrimination. Today's action is another great step forward to ending a practice that is not only unfair, but illegal. We are proud that this joint state-federal action will help protect New Jersey workers by putting an end to unfair labor practices,"?said Governor Phil Murphy.

Information sharing

To the extent practicable and allowed by law and policy, US DOL and the respective state agencies agree to:

— Exchange information on laws and regulations of common concern to the agencies.

— Establish a methodology for exchanging investigative leads, complaints, and referrals of possible violations.

— Exchange information (statistical data) on the incidence of violations in specific industries and geographic areas.

Where appropriate and to the extent allowable under law, US DOL and the respective state agencies may:

— Conduct joint investigations in the state

— Coordinate their respective enforcement activities and assist each other with enforcement

— Make referrals of potential violations of each other's statutes

States participating in MOUs with the US Department of Labor (as of August 10, 2018)

New Jersey task force comprised of state agency representatives meet to discuss misclassification

As the result of an executive order signed by the governor in May 2018, the Governor's Task Force on Employee Misclassification recently met to discuss the issue of worker misclassification. The task force is chaired by the DOLWD, and brings together agency representatives from the Departments of Agriculture, Economic Development, Human Services, Transportation, Treasury, and the Attorney General's office to collaborate on strengthening misclassification enforcement.

Ernst & Young LLP insights

Worker classification is a complex and increasingly important consideration, with potential risks in the areas of wage and hour compliance, workers' compensation and unemployment insurance.

While determining a worker's proper classification for each jurisdiction is not always straightforward, the consequences of misclassifying workers can be significant. For example, an employer that is found to have misclassified its workers is liable for 100% of the income tax it failed to withhold.

The Affordable Care Act's employer provisions have also drawn focus on worker classification since its provisions extend to employees but not to independent contractors.

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