Author: Scott Schnierer

A law signed earlier this year to protect temporary workers in New Jersey has fully taken effect on August 5th, 2023.

The legislation, known as the Temporary Workers’ Bill of Rights, expands the rights and protections to only very specific labor categories of temporary workers – allowing for greater oversight of temporary help service firms and third-party clients by the New Jersey Department of Labor and Workforce Development  and the Division of Consumer Affairs. It was enacted by Gov. Phil Murphy in February.

Some examples of those labor categories include:

• Food preparation
• Construction
• Protective Services / Security

Some provisions of this law were effective May 7, 2023, while other provisions including record keeping and transportation were effective on August 5, 2023. The notice of rule proposal has been published on the NJ Department of Labor & Workforce Development.

Bringing on summer interns is a great way for an organization to get help and mentor a student with a passion for the industry. It may also let managers take that much needed vacation. One consideration that companies don’t realize is that summer interns need to be paid a fair hourly wage according to federal and state payroll tax guidelines. Basically, interns must be treated as employees and added to a company’s full time staff payroll. You can’t get something for nothing.

Even when organizations realize that they have to pay to play, they still hesitate to use summer interns because they must now officially hire the employee and add to staff payroll. This reality can frustrate the CFO and Human Resources department due to the fact that summer interns who are directly employed will add to the overall company’s headcount. The employment of interns can also complicate monthly full time employee (FTE) census reports. The impact could cost throw off discrimination testing for retirement plans, add additional payroll processing costs, and simply just increase employee risks and exposure with regards to workers compensation insurance premiums.

A popular strategy to remove the employer and employee relationship is to refer the summer interns to an employment agency that specializes in third party payroll solutions. With this practice, the summer interns can still be on boarded, but they become the employee of the employment agency. The employee or intern is simply transferred to the employment agency and the agency takes on the official employer of record. The employment agency will also become the W-2 employer and deduct state and federal taxes as well as insure the employee (workers compensation and professional liability).

A responsible third party payroll solutions firm is aware of the compliance issues, co-employment loopholes, workers compensation insurance risks, and payroll laws. When selecting a third party payroll solutions partner, select a provider that is financially solvent. After all, the employment agency is extending payroll on your company’s behalf. They are required to pay the employee on a weekly payroll cycle no matter what happens. Also, inquire about the employment agency’s employee benefits offerings. Health benefits and 401(k) retirement plans will increase summer intern retention if applicable. Some employment agencies offer a 401(k) employer match. A great way to retain interns.

Overall, summer interns are a great way to maintain succession planning and office productivity. An easy way to get the payroll process going smoothly and quickly is to partner with an employment agency that specializes in third party payroll solutions. Why not let your trusted payroll specialist and advisor handle the compliance?

As an employment agency, our goal is to consult with companies to discuss how we can solve their human resources challenges in order to become a partner in their strategic staffing plan. Through these conversations, we sometimes discover that these potential clients currently utilize 1099 Independent Contractors incorrectly. They are technically misclassifying the status of the 1099 Independent Contractor.

1099s are self employed individuals who do not work for any company as an official employee. They do not report W-2 earnings, they are not listed on any company’s official payroll, and they are responsible for filing their own taxes. Unfortunately, in several cases, companies unknowingly retain workers as 1099s for almost any job title (e.g. customer service, receptionist, sales rep, office manager).

Companies that utilize 1099s are responsible for the compliance and controls. 1099 compliance refers to the process of following the Internal Revenue Service (IRS) regulations for reporting payments made to independent contractors or freelancers.

Businesses are required to issue 1099 forms to independent contractors and vendors if they paid them more than $600 in a tax year. The 1099 form details the amount paid to the contractor or vendor and is also reported to the IRS.

Failure to comply with 1099 regulations can result in penalties and fines from the IRS. Therefore, it’s important for businesses to understand the requirements and ensure they are accurately reporting all payments made to independent contractors and vendors.

To ensure 1099 misclassification compliance, businesses should keep detailed records of all payments made to independent contractors and vendors throughout the year, and issue 1099 forms to those who meet the payment threshold by the end of January of the following year. Additionally, businesses should keep copies of all 1099 forms issued and file them with the IRS by the appropriate deadlines.

If a worker is misclassified as an independent contractor when they should have been classified as an employee, there can be penalties for both the employer and the worker. Here are some of the penalties that could apply:

For Business / Employers:

• Fines: Employers can be fined for misclassifying workers. The amount of the fine varies depending on the severity of the violation, but can be up to $1,000 per misclassified worker for a first offense and up to $5,000 per worker for repeat offenders.
• Back Taxes: Employers can be required to pay back taxes and penalties for failing to withhold income taxes, Social Security, and Medicare from the worker’s paychecks that should have been W-2 employees.
• Legal Costs: Employers may also face legal costs if the misclassified worker takes legal action against them.

For Workers / Employees:

• Loss of Benefits: Misclassified workers may not be eligible for benefits that are available to employees, such as health insurance, retirement benefits, and workers’ compensation.
• Unpaid Taxes: If the employer did not withhold income taxes, Social Security, and Medicare from the worker’s paychecks, the worker may be required to pay these taxes themselves.

In addition to these penalties, 1099 Independent Contractor misclassification can also have other negative consequences for both the employer and the worker, such as damaging the employer’s reputation and harming the worker’s ability to obtain future employment. It’s important for employers to properly classify their workers to avoid these penalties and protect their workers’ rights.

A remedy to the 1099 misclassification problem is to legally classify the worker as a W-2 employee. When that happens, the employer-employee relationship has been documented and taxes and wages are reported to both the state and federal revenue agencies.

Companies can simply convert the 1099 to an employee or use a third party payroll solution. In either case, the 1099 misclassification and potential penalties have been eliminated.