October 15, 2018

NJ Unemployment Tax Owner-Operator Exemption Gutted

The New Jersey Department of Labor and Workforce Development recently 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. Specifically, motor carriers wanting to take advantage of the owner-operator exemption must show that the owner operator in question is exempt from the Federal Unemployment Tax Act (FUTA) before asserting that the New Jersey exemption applies.

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 an:

  1. (a) IRS private letter ruling;
  2. (b) IRS audit;
  3. (c) IRS determination letter ruling (any of which must find the worker to be an independent contractor under FUTA), but most readily demonstrable;
  4. (d) or by providing evidence that the workers satisfied the IRS 20 Factor test.

Transportation law firm Scopelitis shared that effective September 17, 2018, most notably the (d) method has been eliminated. Entities may now only show under New Jersey’s unemployment tax law that the owner-operator in question is exempt from FUTA by providing:

  1. 1. Evidence of an employment tax audit conducted by the IRS or;
  2. 2. An IRS determination letter ruling that the owner-operators in question are not

Unless a transportation company has one of the above, nothing has changed for that company. And, if they do possess one of the above, it now no longer provides an exemption for FUTA.

The only factor that can provide an exemption is the evidence of an employment tax audit conducted by the IRS or an IRS determination letter ruling that the owner operators in questions are not employees.

This is a departure from recent case law, and according to Scopelitis, 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.

Excerpt shared via Scopelitis Transportation Law Alerts

 

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