Are my Owner Operators Employees or Independent Contractors ?

New Jersey has been active in seeking to define what constitutes an Independent Contractor or an Employee when it comes to hiring of Owner Operators.  Under a recent Bill proposed in the New Jersey Legislature an Owner Operator would be classified as an Employee for services performed, unless a company can prove to the satisfaction of the Department of Labor and Workforce Development that:

 

- the individual has been and will continue to be free from control or direction over the performance of that service, both under his contract of service and in fact;


- the service is either outside the usual course of the business for which the service is performed, or the service is performed outside of all the places of business of the employer for which the service is performed; and


- the individual is customarily engaged in an independently established trade, occupation, profession or business.


Under the bill, an employer who purposely misclassifies an employee as an independent contractor would be subject to criminal penalties of $2,500 for a first offense. If they mislabel workers in error, they could still face up to $1,000 per violation.

 

Under current New Jersey law, according to the New Jersey Motor Truck Association, owner-operators are exempt from being classified as "employees" for the following reasons:


-Operators with motor vehicles weighing 18,000 pounds or more, licensed for commercial use and used for the highway movement of motor freight. Equipment must be owned, leased or financed through an entity not owned or controlled directly or indirectly by the entity for which the services were performed. The owner operators must be compensated by receiving a percentage of the gross revenue generated by the transportation move or by a schedule of payment based on the distance and weight of the transportation move.


If the above state exemption does not apply, the independent contractor must apply the state's ABC Test:


a) The individual has been and will continue to be free from control or direction over the performance of that service, both under his contract of service and in fact.


b) The service is either outside the usual course of the business for which the service is performed, or the service is performed outside of all the places of business of the employer for which the service is performed; and


c) The individual is customarily engaged in an independently established trade, occupation, profession or business.


However, the New Jersey Motor Truck Association explains, authorities now are requiring evidence of FUTA exemption.  The association says the NJDOL decided that in order for an owner-operator to use the state "employee" exemption they had to first prove that the IRS had also deemed them not an employee by getting an IRS Determination. The business community was unaware of the change in policy, which has resulted in the NJDOL re-classifying owner-operators as employees for unemployment tax purposes.   Read more about what the NJMTA has to say about Owner Operators Employee classification.