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Karcher Bill To Crack Down On Tax-Cheating Home Builders Receives Final Legislative Approval

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 today by a vote of 24-12, receiving final legislative approval.

“It’s become an all-too-common practice for home contractors to cheat the tax system and exploit workers to line their own pockets,” said Senator Karcher, D-Monmouth and Mercer. “Day laborers and other employees, classified as independent contractors, do not receive a fair living wage or benefits, and are not accounted for in their employers’ contributions to State safety nets like disability insurance. We need to crack down on those contractors who avoid paying their fair share by misclassifying their employees.”

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 penalties on the books right now are not enough to deter contractors from breaking the law,” said Senator Karcher. “We need serious penalties to force contractors to comply with fair employment practices, not slap-on-the-wrist fines which amount to the cost-of-business in New Jersey.”

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 contractors exploit their workers for added profit,” said Senator Karcher. “But when they defraud the public, and skirt contracting laws designed specifically to ensure fair wages for employees on public contracts, we need to be able to pursue even greater penalties. The State should not be a willing accomplice when contractors seek to deny their employees decent wages and needed benefits.”

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.

“Misclassified employees have no recourse should they be disabled on the job,” said Senator Karcher. “They’re forced to work through illness and injury, because they have no health insurance, and lost time at work means lost pay for their families. Barring the millions lost to honest taxpayers who pay their fair share, this measure will protect a class of employees that has been historically exploited to increase a contractor’s bottom line.”

The bill now heads to the Governor to be signed into law.

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