TRENTON – A bill sponsored by Senator Ellen Karcher which would increase penalties on home builders who misclassify construction workers in an attempt to circumvent New Jersey tax laws was approved by the Senate Labor Committee today by a vote of 4-0.
“In New Jersey, it’s an all too common practice for home building contractors to hire day laborers to cut costs on a project,” said Senator Karcher, D-Monmouth and Mercer. “However, these contractors are exploiting a tax loophole, by classifying their workers as independent subcontractors, paying nothing in income tax, disability insurance or unemployment. The day laborers are left without an adequate safety net, while New Jersey is cheated out of millions in income tax revenue, and it’s time we put an end to this fraudulent practice.”
The bill, S-2579, would establish a presumption of an employer-employee relationship, which the employer would have to overcome in order to classify construction workers as independent contractors. The bill would ensure that any employer, or any representative of the employer, who fails to pay wages, benefits, taxes or other contributions is guilty of a disorderly persons offense, and could face a fine between $100 and $1,000 and possible imprisonment of 10 to 90 days, or both. Each week in which an employee is misclassified, and each employee, would be considered a separate offense.
“The current punishments meted out for this sort of deceptive practice are not working,” said Senator Karcher. “Many employers see the slap-on-the-wrist fines currently available under law as nothing more than the cost of doing business in New Jersey. Under this bill, the worst offenders of fair employment laws could potentially face jail time.”
Senator Karcher added that the criminal penalties are intended as a tool against “only those egregious and repeat offenders who continually flaunt the law.”
The bill would also provide much greater penalties if the misclassification occurs on a project which is subject to the prevailing wage law. Under the bill, any misclassification of construction workers done knowingly on a public prevailing wage project would give prosecutors the ability to seek a fine of up to $150,000 and imprisonment of up to 10 years, depending on the initial cost of the construction project. Additionally, any misclassification done knowingly on a project paid for with public funds would be punished with mandatory debarment, prohibiting the contractor from bidding or being involved with any future public works contracts.
“It’s bad enough when New Jersey contractors exploit their workers and tax loopholes to expand their bottom line,” said Senator Karcher. “But when public funds are abused, and taxpayer dollars are subsidizing tax-cheating builders, we need to be able to throw the book at them.”
Senator Karcher noted that, along with closing a loophole that has cost millions in lost income tax revenue, this bill is about protecting workers, who are not being paid fair wages or benefits, and do not have a safety net should they be hurt on the job site.
“Along with cheating the tax system, these employers are exploiting their workers for greater profits,” said Senator Karcher. “They’re putting untrained workers in a hazardous work environment, without the benefit of health insurance or long-term disability insurance. When these workers are hurt, they’re dumped in an Emergency Room, adding to the State’s charity care burden that we all pay for through our collective tax assessment, and should they face permanent disability, they and their families cannot support themselves to make ends meet in the Garden State.
“As a point of fairness, to New Jersey’s tax-paying citizens and to the workers being taken advantage of by unscrupulous contractors, we need put an end to the deception and fraud that has become commonplace on construction projects,” added Senator Karcher.
The bill now heads to the Senate Budget and Appropriations Committee for review, before going to the full Senate for consideration.