Are You Categorizing your Employees and Contractors Correctly?

Are You Categorizing your Employees and Contractors Correctly?

Maryann Holloway, CPA, RMA, PSA, Senior Manager
Posted by Maryann Holloway, CPA, RMA, PSA, Senior Manager on May 23, 2019 2:00:00 PM
Find me on:

ComplianceIf you employ people in the state of New Jersey, one of your responsibilities is to contribute toward your employees’ unemployment compensation and state disability benefits funds under N.J.S.A. 43:21‐7. If you employ people as independent contractors, and report their earnings via Form 1099, you may think they are not employees and therefore, you do not have to contribute toward their unemployment and disability. You may very well be wrong.

The state has found that many employers, particularly owners of small- and medium-sized businesses, are unilaterally deciding whether someone who does work for them is considered an employee or an independent contractor.

How can you make the correct decision on the treatment of those who do work for you, so you don’t neglect a contribution you should be making?

According to the regulation, N.J.S.A. 43:21‐1 et seq., the New Jersey Unemployment Compensation Law (NJUCL), if a service is performed for remuneration or under any contract of hire, written or oral, express or implied, it is considered to be covered employment, unless the potential employer is able to establish the following with regard to the service at issue and the individual providing that service:

  • (A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
  • (B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  • (C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.

This is commonly referred to as the ABC test. If individuals working with you do not meet all three of these criteria, they are considered employees, and you must contribute to their unemployment funding.

Be sure to seek qualified advice from a financial and/or legal professional to ensure you're properly managing both your employees and your contractors.

Contact Maryann

Topics: Government Entities, Not-for-Profits, For-Profit Entities, Funeral Homes, Construction, Professional Services, Healthcare, Federal Services