On July 8th, Gov. Murphy signed a number of bills. One of the bills gave $1 million dollars to the Department of Labor and Workforce Development (DOLWD). They then established the Office of Strategic Enforcement and Compliance (OSEC). Many business owners are probably wondering what OSEC is, and what it does. 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. Pay attention to this enforcement agency created quickly and quietly. Today, I’m going to explain why this office could cost you money if you’re asleep at the wheel. I’ll also cover the ways to wake up before it does.
What is OSEC, 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 also promotes inter-departmental communication at the DOLWD represents them in communication with other state and federal departments.
The definition of this office is so broad and has come into effect rather quickly. 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. So, the OSEC will definitely be seeking to establish itself as a reliable source of revenue for Trenton.
In the simplest terms, they could come snooping around and give you fines. It’s time to handle any outstanding fines or ways you’re violating state labor laws. It’s gotta’ get done, and now there’s a new agency created to find labor violations throughout the state.
What Do I Do to Avoid Fines From OSEC?
Fix all the areas in which you’re on the fence or simply avoiding compliance. OSEC inspectors won’t be confused by your delivery drivers getting 1099s. Just bite the bullet and get everything current. The time where business owners could avoid fines is ending.
If there are areas in which you have a little workaround to avoid being in violation of the law, deal with those things. OSEC will be pressing on those workarounds to expose the truth: they’re loopholes. They’re going to charge you for the years you avoided payment in this manner.
More importantly, talk with your accounting and financial professionals to discover ways you might be 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 OSEC?
The goal of the OSEC is to crack down on businesses in violation of DOLWD regulations. OSCE’s primary focus is catching employers classifying employees as independent contractors that are really 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. Owners that reclassify some employees can bring their business beneath the threshold number of employees where they have to provide such benefits.
It can make more economic sense for an employer to reclassify a couple employees rather then give benefits. Because of the requirements of healthcare laws, retirement benefits like the recent secure choice savings program, and general worker protections, employer often make this decision.
This affects the people who were classified as independent contractors. It also affects employees who now miss out on these benefits because their employer ‘technically only employs 18 people, not 26.’
What Bills Did Governor Murphy Sign?
Allows the labor commissioner to
- Charge the employer for court costs in disputes ruled in favor of the DOLWD.
- Decide when a labor dispute bypasses the Office of Administrative Law (OAL) and goes right into superior court.
- Get injunctions and stop work orders issued by the superior court because of violations and fines
DOLWD has acquired a huge weapon in regulating. They can now prevent business owners from working until they’ve sorted out whatever issues exist.
The earlier system in which all labor disputes passed through the OAL is over. This system gave business owners time to prepare and deal with a court that had years of specialty dealing specifically with administrative law. Now, investigators can throw cases into the whirlwind of superior court that, quickly and brutally dishing out rulings to owners. This law is a healthy win for the prosecutor
This provision actually approves $1 million dollars the DOLWD can use. The purpose of the money is to establish the OSEC and the purpose of the OSEC to serve as a regulatory agency. It specifies that the purpose of the OSEC is to strategically enforce state tax and labor laws. It also encourages checking into the compliance history of businesses as they apply for programs with the DOLWD or other government agencies.
This provision makes misclassifying employees to evade payment of insurance premiums a crime. The law falls under the New Jersey Insurance Fraud Prevention Act (NJIFPA). The cost reaches $5,000 for the first violation, $10,000 for the second, and $15,000 for the third.
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 a public or government worker, be extra careful. Remember that your payroll will probably be requested by the DOLWD and might be subjected to extra scrutiny.
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, start doing it. The only mistake you can make here is doing nothing. Failing to research compliance laws, or even actively ignoring something that you know needs to be fixed.
Thinking about all the work it will take to get your business 100% in step with regulations may seem monumental, but it’s not. I assure you that it’s even more stressful to spend every day worrying.