New Jersey Is About to Take Another Step Towards Eliminating the Use of Independent Contractors by Providing Them with Benefits



Executive Summary: The New Jersey Legislature appears poised to pass S67, the Portable Benefits Act for Independent Contractors, in the upcoming lame-duck session. If passed, the Governor is expected to sign the bill before the end of the year. The bill doubles down the current administration’s effort to end misclassification of independent contractors by creating a financial disincentive to utilizing contractors. Though the intent of the bill seems to be directed at online companies such as Uber, Lyft, Amazon, Handy and others, the impact will affect any business that relies on contractors. The bill also appears to subtly create new opportunities for organized labor through the creation of “Qualified Benefit Providers.” At least half of the members of the Boards of these funds must be worker representatives or workers. Though not in its final form, it appears some form of this bill will soon become law.

Summary of Bill Provisions: In sum, the Bill requires any entity that utilizes 50 or more contractors in 12 consecutive months within the state of New Jersey to contribute funds to a Qualified Benefit Provider for the benefit of the independent contractors. The amount contributed must equal 25 percent of the contractor’s total fee or $6.00 per hour, prorated to ten cents per minute. Contributions must be made on no less than a monthly basis.

Contributions are made to Qualified Benefit Providers, who will create trust funds to provide contractors with workers’ compensation and other benefits, which are to be selected by the contractors. Qualified Benefit Providers may use up to five percent of the amounts collected to cover administrative costs. The New Jersey Department of Labor (NJDOL) will determine who may be a Qualified Benefit Provider utilizing the following criteria: 1) must be a nonprofit, 2) half the board must consist of workers or organizations representing workers, 3) board members may not have any interest in entities that utilize contract workers, 4) the organization must work toward maximizing benefits for workers, 5) the board has a fiduciary responsibility to the workers and 5) the organization must demonstrate adequate viability and financial sufficiency. These criteria seem to place organized labor in a prime position to be selected to run these new trust funds.

The bill only exempts four types of contractors: real estate agents; financial product salespersons; anyone subject to a collective bargaining agreement; or anyone who solicits orders as a sales representative of the principal entity. NJDOL will be responsible for monitoring, overseeing these new benefit providers, ensuring workers’ compensation insurance is provided, and establishing a fee to charge entities utilizing contractors to fund their efforts. Failure to comply with this Act may be enforced by either the NJDOL or a private right of action on behalf of the contractors.

Employers' Bottom Line: Although it is unclear what the language of the final law will be, it is clear that New Jersey is aggressively attempting to eliminate reliance on independent contractors. We expect this legislation to become New Jersey law soon, which will substantially increase the cost of utilizing independent contractors within New Jersey.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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