Save Money and Avoid Tax Penalties: The NJ Business Owners Complete Guide to Governor Murphy’s New Office of Strategic Enforcement and Compliance

On July 8th, Gov. Murphy signed a number of bills, one of which gave $1 million dollars to the Department of Labor and Workforce Development (DOLWD) to establish the Office of Strategic Enforcement and Compliance (OSEC). The purpose of this office is primarily to enforce DOLWD labor regulations on businesses participating in programs.

Whether or not you are a business that has involvement with the DOLWD doesn’t matter, you should be paying attention to this enforcement agency that was created quickly and quietly. In this article I’m going to explain why this new office could cost you money if you’re asleep at the wheel and ways to wake up before it does.

What is the NJ Office of Strategic Enforcement and Compliance?

It’s a brand new labor-regulation enforcement agency and will be looking to issue fines. It’s additional roles are stated as providing inter-departmental communication at the DOLWD as well as representing the agency during communication with other state and federal departments.

The definition of this office is so broad and coming into effect so quickly that I’m concerned that this office will be the definition of the taxman in every sense of the word.There’s no enforcement agency that takes it easy in their first year of existence, and the OSEC will definitely be seeking to establish itself as a reliable source of revenue for Trenton.

How Could This New Enforcement Agency Affect My Business? 

In the simplest terms, they could come snooping around and give you fines. Any outstanding fines you might have, or any ways you’re currently in violation of the various state labor laws are both ripe for getting in order. It’s gotta’ get done eventually and now there’s a new agency created for the purpose of finding labor violations throughout the state.

What Do I Do to Avoid Fines From The NJ Office of Strategic Enforcement and Compliance.

All the areas in which you’re on the fence or simply avoiding compliance, fix it. There’s no OSEC inspectors that are going to be confused by your delivery drivers getting 1099s, so just bite the bullet and get everything current. The time where business owners could avoid fines is quickly coming to an end.

If there are areas in which you have a little workaround to avoid being in violation of the law, deal with those things. This new OSEC will be pressing on those workarounds to expose the truth: they’re loopholes, and charge you for the years you avoided payment in this manner.

More importantly, talk with your accounting and financial professionals to figure out the areas in which you might be unaware you’re in violation. There’s what you know, what you know you don’t know, and what you don’t know you don’t know; that third category is the most dangerous when it comes to government regulations.

Beyond the dollars and cents, getting all your employee and labor paperwork up to date is a gift you can give yourself. Rather than constantly walking around wondering when it’ll come crashing down, build your labor force into a legitimate and legal source of revenue that encourages growth rather than an unwieldy department that you’re always trying to manage in size.

What is the Stated Purpose of the NJ Office of Strategic Enforcement and Compliance?

The goal of the OSEC is to crack down on businesses in violation of DOLWD regulations. The primary focus is employers classifying employees as independent contractors that could better be described as employees. This results in less tax paid to the state at the same time that employers are able to avoid providing their workers the protections and benefits guaranteed by law.

A 2018 audit of 1% of the labor force revealed $460 million in unreported wages. Add in the other 99% they didn’t hit with an audit and you can see the glut of untapped revenue the state is trying to get after.

The payment of workers as 1099 independent contractors allows employers to reduce the number of people on their books and the number of people they have to provide any healthcare, PTO, or other benefits to. In the most beneficial situations, the reclassification of a handful of employees can bring business beneath the threshold number of employees where the business is even required to provide such benefits.

Because of the requirements of healthcare laws, retirement benefits like the recent secure choice savings program, and general worker protections, sometimes it’s easier and makes more economic sense for an employer to reclassify a couple employees


This not only affects the people who were classified as independent contractors, but the majority of employees who now miss out on these benefits because their employer ‘technically only employs 18 people, not 26.’

What are the Actual Laws that Were Signed?

A-5890

Allows the labor commissioner to

  1. Charge the employer for court costs in disputes ruled in favor of the DOLWD.
  2. Decide when a labor dispute bypasses the Office of Administrative Law (OAL) and goes right into superior court.
  3. Get injunctions and stop work orders issued by the superior court because of violations and fines

This is a huge weapon that’s been given to the DOLWD as they can now prevent business owners from working until they’ve sorted out whatever issues exist between business and department.

The earlier system in which all labor disputes passed through the OAL allowed business owners time to prepare, as well as to deal with a court that had years of specialty dealing specifically with administrative law. Now cases can be thrown into the whirlwind of superior court that can quickly and brutally dish out binding rulings to business owners. This law can be considered a healthy win for the prosecutor

A-5891

This provision actually approves $1 million dollars to be used within the DOLWD for the purpose of establishing the OSEC and states the purpose of the OSEC to serve as a regulatory agency.

Specifies that the purpose of the OSEC is to strategically enforce state tax and labor laws as well as to check into the compliance history of businesses as they apply for programs with the DOLWD or other government agencies that require DOLWD approval.

A-5892

This provision makes misclassifying employees to evade payment of insurance premiums a crime under the New Jersey Insurance Fraud Prevention Act (NJIFPA). The cost is $5,000 for the first violation, $10,000 for the second, and $15,000 for the third. 

A-1171

This provision requires the Labor Commissioner to establish a statewide database for all the public works projects.  This isn’t something that will affect you unless you’re involved in a business that works in partnership with the state on construction and utility projects.

If you are working on a bridge, park, or even the Newark Airport renovation, keep in mind that your payroll will probably be requested by the DOLWD and might be subjected to extra scrutiny.

The Tax Takeaway

Don’t panic, just be diligent and make a call to your financial professional. If you already know the thing you need to set up, just get at doing it. The only mistake you can make here is doing nothing, failing to research your compliance, or even actively ignoring something that you know needs to be fixed.

The thought of all the work it will take to get your business 100% in step with state and federal legislation may seem monumental, but I assure you that it’s even more stressful to spend every day worrying about how it’s not.