The Risks of Misclassification in NJ’s Construction Industry

Construction is the backbone of New Jersey’s economy. From new apartment complexes in Jersey City to roadwork along the Turnpike, thousands of workers keep the state growing every day. But there’s a growing problem in the industry that can cost workers big time: contractor misclassification.

In construction, it’s not uncommon for companies to classify workers as independent contractors instead of employees. Sometimes it’s an honest mistake. Sometimes, it’s a deliberate move to save money at the expense of workers’ wages, benefits, and rights. 

If you’re a construction contractor in NJ, wondering if you’re being paid fairly, here’s what you need to know about misclassification.

What Does “Misclassification” Actually Mean?

Misclassification happens when a company labels a worker as an independent contractor when, by law, that worker should be treated as an employee.

In construction, misclassification can look like this:

• You work regular hours set by your boss, but you’re paid without taxes taken out.
• You use company tools or equipment every day but are told you’re “on your own.”
• You’re expected to follow company policies and procedures but aren’t on the payroll.

On paper, you’re an independent contractor. In reality, you might be an employee — and missing out on crucial legal protections.

Why Some Employers Misclassify Workers

Unfortunately, the construction industry has a long history of misclassification. That’s because employers can save money by avoiding:

• Paying payroll taxes
• Contributing to unemployment insurance
• Providing workers’ compensation or disability insurance
• Complying with minimum wage and overtime laws
• Offering benefits like health insurance or paid time off

By classifying workers as independent contractors, some companies shift costs and risks onto workers — and give themselves an unfair advantage over competitors who follow the law.

How Big Is the Problem?

A 2000 U.S. Department of Labor study revealed that in New Jersey’s construction industry alone, misclassification led to significant losses in unpaid state income taxes on off-the-books wages and underreported earnings. The state also missed out on millions in unemployment insurance contributions that same year.

Since misclassification has only increased since 2000, New Jersey is likely losing tens of millions of dollars every year in unpaid state income taxes and missing contributions to unemployment and disability funds across various industries.

This practice has surged by about 40% over the past decade, becoming a growing problem in New Jersey. Misclassifying workers harms both employees and honest businesses, while costing the state millions.

The ABC Test: How NJ Determines Worker Status

New Jersey uses what’s known as the ABC Test to decide if someone is an independent contractor or employee. Under this test, a worker is an employee unless all three of the following are true:

1. A — The worker is free from control or direction over how they do their work.
2. B — The work is performed outside the usual course of the company’s business or outside all the company’s places of business.
3. C — The worker is engaged in an independently established trade, occupation, or business.

In construction, it’s tough to meet all three. For example:

• If you report to a site every day and take instructions from a foreman, you’re likely not free from control.
• If your work is part of the company’s main business — like framing houses for a contractor — you’re probably not working outside the usual course.
• If you don’t have your own established business (with your own clients, insurance, and business cards), you’re probably not independent.

The ABC test is one of the most important tools for detecting misclassification. Failing even one part of the ABC test usually means you’re an employee.

The Risks for Workers

Being misclassified can hurt you in big ways. Here’s what you could lose:

• Overtime pay — As an employee, you’re entitled to time-and-a-half after 40 hours a week. Misclassified workers often get no overtime.
• Minimum wage protections — Employers might pay a flat rate or piece rate that ends up below minimum wage (currently $15.49/hour in 2025).
• Workers’ compensation — If you’re injured on the job and misclassified, you might be denied medical care and wage replacement.
• Unemployment benefits — Laid-off misclassified workers may not be eligible for unemployment.
• Legal protections — Employees have rights to family leave, discrimination protections, and more. Independent contractors do not.

Being misclassified can leave you without crucial safety nets right when you need them most. If you think you’ve been misclassified, a misclassification attorney in New Jersey can help you protect your rights and get the benefits you deserve.

Risks for Employers

Employers who misclassify workers are harming employees while breaking the law. Penalties can include:

• Fines from the NJDOL
• Back wages and taxes owed
• Lawsuits from workers seeking unpaid wages or benefits
• Criminal charges in cases of intentional fraud

New Jersey has stepped up enforcement in recent years. In 2018, Governor Phil Murphy created a Task Force on Employee Misclassification, and since then, the state has investigated hundreds of companies, collecting millions in unpaid wages.

Signs You Might Be Misclassified

Not sure if you’re being misclassified? Here are some of red flags, hiding in your contract or at your workplace:

• Your employer controls your hours, tasks, or how you do your work.
• You wear a uniform or badge with the company’s name.
• You use tools or equipment owned by the company.
• You don’t advertise your own business or have other clients.
• You’re paid by the hour or week, not by contract.
• Taxes aren’t taken out of your paycheck, and you get a 1099 form at tax time instead of a W-2.

Real-World Example

Let’s say a framing contractor hires carpenters to build residential walls and roofs on a large development. The contractor provides the tools, sets the hours, and directs how the work is done. The carpenters work exclusively for that contractor for months at a time.

Even if the workers sign paperwork calling them “independent contractors,” they’re likely employees under the law — because the contractor controls their work, the tasks are part of the contractor’s usual business, and the workers aren’t running independent carpentry businesses. In these cases, misclassified workers may be entitled to compensation for unpaid wages, overtime, and benefits they were wrongly denied.

What You Can Do If You’re Misclassified

If you believe you’ve been misclassified, you don’t have to simply accept it. Here’s what you can do:

1. Document Your Work Relationship

Keep records of job assignments, hours worked, instructions received, tools provided, and any communications about your work. This information helps show whether you’re truly independent.

2. Ask Questions

It’s okay to ask your employer how they classified you and why. Sometimes misclassification stems from misunderstanding — and raising the issue can lead to correction.

3. File a Complaint

You can file a complaint with the New Jersey Department of Labor and Workforce Development (NJDOL) if you suspect misclassification. The state can investigate, order back pay, and impose penalties.

4. Talk to a Lawyer

Worker misclassification cases can be complex. A misclassification lawyer in New Jersey can review your situation, help gather evidence, and guide you through your options — including potential claims for unpaid wages, overtime, and benefits.

Protections Against Retaliation

Worried your boss might fire you for speaking up? Under New Jersey law, it’s illegal for employers to retaliate against workers who:

• Ask to be correctly classified
• File complaints about wages
• Cooperate with investigations

If you face retaliation, you may have an additional legal claim.

Your Work Deserves Fair Pay

Construction is demanding, dangerous, and essential work. You shouldn’t have to worry about whether you’re being paid fairly or risk losing the protections you’ve earned. Whether you’re labeled a gig worker or an employee matters greatly: misclassification can rob workers of wages, safety, and peace of mind, while putting honest employers who follow the rules at a disadvantage.

If something feels off, trust your gut. Learn your rights, keep good records, and don’t be afraid to seek help.