Law Alert: NJ Unemployment Tax Owner-Operator Exemption Gutted
September 18, 2018
NJ Unemployment Tax Owner-Operator Exemption Gutted
Yesterday, the New Jersey Department of Labor and Workforce Development published notice that it had adopted substantial changes to the regulations interpreting what constitutes necessary evidence under New Jersey’s unemployment tax independent contractor exemptions applicable to a wide range of industries -NJ Stat. Ann. S 43:21-19(i)(7). Specifically, motor carriers wishing to take advantage of the owner-operator exemption found at NJ Stat. Ann. S 43:21-19(i)(7)(X) must show that the owner-operator in question is exempt from FUTA before asserting that the New Jersey exemption applies in a particular circumstance. Previously, an entity (with owner-operators operating vehicles over 18,000 lbs and not subject to the entity’s / motor carrier’s vehicle lease purchase program) could show that the owner-operator was exempt by providing evidence of (a) an IRS private letter ruling; (b) an IRS audit; (c) an IRS determination letter ruling (any of which must find the worker to be an independent contractor under FUTA) but most readily demonstrable; (d) or by providing evidence that the workers satisfied the IRS 20 Factor test.
Effective September 17, 2018, most notably the above (d) method has been eliminated! Entities may only show under New Jersey’s unemployment tax law that the owner-operator in question is exempt from FUTA by providing evidence of an employment tax audit conducted by the IRS or an IRS determination letter ruling that the owner-operators in question are not employees. This is a departure from recent case law and could significantly impact the independent contractor landscape (by making the statutory IC exemption far less accessible) across industries, including transportation in New Jersey. Without the exemption, the independent contractor determination defaults to the common law-- ABC test, which has been difficult for motor carriers using owner-operators in the past.
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