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The 2020 New Jersey Freelancer/Independent Contractor Law-What Small Businesses Need to Know Now

NJ Senate Bill--S4204 and Assembly Bill A5936

Small businesses struggle to keep up with changes to the social/legal/business landscape caused by new technologies. New Jersey residents have a temporary pause, but an important law that pushes back on these issues seems likely to pass in revised form. As currently written, the new law will affect freelance business owners, small subcontractors, and the businesses that contract with those companies. Many could be hurt financially. At the very least this law and other coming changes will cause most of us to transform the way we secure our economic futures.

Here is what small businesses need to know!

LEGISLATIVE BACKGROUND

The New Jersey bill, which is similar to a California law (and legislation under consideration in several other states), aims to halt labor misclassification. Legislating employee misclassification makes it harder for businesses to say someone is not an employee when functionally, they really are. Advocates for the law make the case that many workers are not full employees in name-only. Employers who use independent contractors (or those that misclassify workers) don't pay overtime costs, health care expenses, taxes and more. And, a July 2019 report from a governor's task force found that New Jersey lost out on nearly $9 million in state income taxes because of misclassified workers annually starting in 2000. The stakes are high.

WHAT THE LAW SEEKS TO DO AND WHY

The law would require any organization hiring a self-employed entity to demonstrate that the individual is not an employee. Otherwise, the new law makes these contractors entitled to the same benefits as other employees. Put differently, it used to be that the organization decided your classification as either an employee or non-employee/contractor. Now, organizations will have to prove that workers are functionally, not employees. The legislative legalese of managing this transition is fraught.

The law was written to give more certainty to gig workers, like those who drive for Uber, Lyft or have other sharing economy jobs. The legislation responds to evidence that some minimum wage and gig economy workers qualify for state and federal subsidies because of the absence of employee-style benefits. Consequently, the legislation seeks to verify that freelance categorization is not simply to shift costs away from shareholder value onto vulnerable individuals and the larger society. Restated, the law prevents gig economy tech companies from shifting social benefit costs away from shareholders onto New Jersey taxpayers.

The law of unintended consequences means lawmakers are getting an earful. The New Jersey Small Business Association’s (NFIB), State Director is Laurie Ehlbeck. Ehlbeck says, “The companies that contract with (independent contractors) would hesitate to offer them work if this bill passes because the definition of ‘independent contractor’ would become so broad there would be concern about legal risks.” Some high-value project workers fear they will have to leave the state to keep current NJ-based customers.

Work is already mid-change for just about everyone. A 2017 McKinsey reportsays that by 2030, 60 percent of all occupations will have at least 30 percent of their traditional work activities automated. Even if you don’t like the law, it is a good idea to start dealing with small business changes caused by disruptive technologies. Legacy businesses will want a level playing field. And, everyone will want to make sure they’re not working more for less. PayDay Masters can you clear-up confusion and manage these changes. Call us for a free consultation.

CONFUSING SITUATIONS

Under the bills as currently written, if a brick work subcontractor (bricklayer) who works for a home developer might be viewed as a representative employee of the developer. The rationale is that the contractor’s typical course of work is building houses, to which brick/stone work is integral. Here, the developer might have to absorb extra management and benefit expenses.

If a beautician makes more money by leasing a corner at a salon, (and prefers that arrangement), she may be required to become an employee because she performs the salon's main business function of hair styling. Here, the beautician might have to lose the flexible work schedule, work fewer hours or some other change she never wanted. The salon owner might have to absorb extra management and benefit expenses.

Anna Brodetsky-Lubischer is a well-paid PR powerhouse, local fitness business owner and mom; she is also a PayDay Masters client and friend.  Anna says, "As a PR freelancer who also owns a gym, many of my projects come as work assigned from large national and NYC/ based PR agencies who need extra hands with media relations or strategy. Most of the time, they hire me for my expertise in fitness, wellness and beauty. It’s a great arrangement for me because I don’t have to spend time doing client relations or new business on the PR side- I can both run the gym and do my PR work, with no time conflicts. Not to mention, I still get to spend time with my toddler and newborn on my own terms. With the passing of the law, these projects go away for me, and thus a huge chunk of my livelihood disappears."

Some will be helped. Some will be hurt. Most of us will have to change our work lives in some way.

A TEMPORARY REPRIEVE

On 18th Dec 2019 constituents and other stakeholders were able to convince New Jersey lawmakers to delay rewriting the regulation that some categories of workers (journalists, public relations and others) say would potentially pressure them out in their jobs. New Jersey Senate President Stephen Sweeney says “The amendments to the bill will continue to ensure the ability of legitimate independent contractors to pursue their work at the same time they safeguard against misclassification,”. Sweeney, D-Gloucester, is sponsoring the bill to “protect workers against the loss of basic rights by being misclassified.”

New Jersey Freelancer/Independent Contractor Law 2020 Checklist

SMALL BUSINESSES

  • Review your employee and subcontractor relationships
  • Review your pricing and current contracts to plan and price for freelancers that may become categorized as employees
  • Review Q1 business needs for how many times you can use a contractor before they will need to become employees or you’ll have to hire different talent. For example, as written the law says you can currently hire independent essayists, editors, and visual columnists 35 times per year before they are viewed as employees.
  • Hire us to advise on hiring strategies that mitigate upcoming legal changes.

FREELANCERS

  • Classifications vary by frequency of work. Review the law to find out how many times you can work for existing customers before you’ll need to make a change. For example, as written the law says independent essayists, editors, and visual columnists can do 35 projects per year before you are viewed as employees.
  • Consider the legal formation of how you receive payment. If you’re currently getting paid as an individual, you may want to become an LLC.

INVESTORS

  • Hire us to review your investment portfolio to identify vulnerable public companies.

GO DEEPER

This is an active Facebook discussion group for freelancers you may want to join: https://www.facebook.com/groups/fightforfreelancers/

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