More than 12,000 New Jersey workers were cheated out of more than $450 million in wages and benefits last year because their employers labeled them as independent contractors instead of employees or paid them off the books, according to a new report released by Gov. Phil Murphy’s administration.
And that’s just across 1 percent of the Garden State’s businesses, the report said.
The practice is called misclassification — a way for employers to pay workers less and avoid shelling out money for taxes and health care.
An audit by the state examined 1 percent of New Jersey businesses in 2018 and found 12,315 workers were misclassified, according to the report released Tuesday by a task force Murphy convened last year to examine the issue.
That cost workers $462 million in underreported wages and $14 million in lost contributions to unemployment, disability, family leave, and workforce programs.
Murphy said Tuesday that when that data is extrapolated “across the entire economy” in the state, misclassification cost workers more than $46 billion in wages and benefits last year.
Murphy’s administration said misclassification is especially prevalent in construction, janitorial services, home care, transportation, trucking, delivery services, and other low-wage professions.
“These are wages that make a difference … in the lives of working families,” the Democratic governor said during a speech in Atlantic Citybefore the New Jersey State Building & Construction Trades Council. “To put food on the table, to save for a kid’s education, or for retirement or to enjoy a family vacation down the Shore.”
The practice also hurts law-abiding business owners and costs the state tens of millions of dollars a year in lost employment tax revenue, Murphy’s administration said.
Murphy said misclassification “was nothing short of rampant across the trades” under the administration of his Republican predecessor, former Gov. Chris Christie.
“It’s a practice that this administration wants to see stopped,” Murphy added.
The report recommends fighting misclassification by expanding enforcement through state agencies, increasing data sharing, and cooperating with neighboring states.
Last May, state Attorney General Gurbir Grewal announced New Jersey joined 11 other states in a legal brief urging the National Labor Relations Board to rule that misclassifying workers violates federal labor laws.
“If you are a contractor engaging in these practices, we are either: A, going to bring you into compliance, or B, we’re going to put you out of the business,” he said.
Murphy noted that he hopes the former is more common.
“We want and need contractors to move our economy forward, but we will not hesitate to go to door B,” he said.
Bob Considine, a spokesman for the New Jersey Business & Industry Association, said his group is still reviewing the report.
“But our take has been and continues to be that employers who are knowingly and willfully misclassifying their workers are not only cheating their workers, but they are also cheating the system,” Considine said. “Misclassification results in higher taxes and higher premiums for all the other employers operating in good faith and lawfully.”
Later on Tuesday, Murphy signed a bill into law that would give the state Department of Labor the power to issue stop-work orders whenever an employer pays a worker less than the prevailing wage.
“Before all else, we must protect the rights of the men and women who are working hard each and every day to earn a decent and fair living," said state Sen. Troy Singleton, D-Burlington, a main sponsor of the law.