Chapter 1 Employer Taxes and Wage Reporting
Section 3 - Liability for Contributions (Taxes)
Determination of Liability
1. Independent Contractors
2. Multiple-State Employment
3. Exempt Employment
Additional Exemptions from Coverage
(Public and Nonprofit Institutions)
Right of Appeal
Termination of Liability
If you are employing, or expect to employ, one or more workers, you should notify the Division of Employer Accounts. This Division will determine whether you are subject to the Unemployment Compensation law. Under the law it is your responsibility to make the fact known. Once you determine that you are an employer, register your business online here.
If you acquire the organization, trade or business, or substantially all the assets of an employing unit that is already subject to the law, you immediately become a subject employer.
If you are subject to the provisions of the Federal Unemployment Tax Act, you automatically become subject under the law, unless the services performed are specifically excluded under the New Jersey law. An employing unit is generally subject to FUTA if it had covered employment during some portion of a day in 20 different calendar weeks within the calendar year or had a quarterly payroll of $1,500 or more.
NOTE: Agricultural employers - You are liable for contributions on wages paid to agricultural employees if:
|1. You were already a registered employer, or
2. Not registered, you were or became subject to the law, having paid wages of $1,000 or more in a calendar year to one or more workers for services performed in a non-agricultural business operation, or
3. You acquired the organization, trade or business, or substantially all the assets of an employing unit already subject to the law, or
4. You are subject to the Federal Unemployment Tax Act, or
5. Not subject under the above provisions, you:
Under certain circumstances, a crew leader who provides a crew to an agricultural employer can be considered the employer of the crew for unemployment tax purposes. The agreement between the crew leader and entity must comply with all federal and state regulations and the crew leader must be registered under the New Jersey Crew Leader Registration Act. For more information contact any Regional Office listed in the Directory.
Domestic Employers - You are subject to the law, if you paid gross cash remuneration of at least $1,000 to domestic labor in a calendar quarter.
The State of New Jersey and its political subdivisions are subject to the law. In determining liability, consideration is given to the following:
All remunerated services performed by an individual are deemed to be employment, unless it is established to the satisfaction of the Department that:
A. “Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;” and
B. “Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed.” This is a two-part test and satisfaction of either part will meet the requirement. Service that is essential to the nature of the business does not meet the first part of this test, regardless of whether any employee performs the same type of service. If there is no fixed place of business, services performed in whole or in part at a temporary work site or an area where customers or prospective customers are located will not meet the second part of this test; and
C. “Such individual is customarily engaged in an independently established trade, occupation, profession or business.” This requires the individual’s business activity to exist and continue to exist independently of, and apart from, the particular service relationship; it must be a stable, lasting enterprise that will survive termination of the relationship.
The application of these tests will result in the reporting to one state of the employee’s total wages in all states. The tests are to be applied to the employee, not to the employer, in the following order: (A) localization of service; (B) base of operations; (C) place of direction and control; (D) residence of employee.
A. Localization of Service Test
To determine jurisdiction of coverage, we first determine whether the service is localized in any state. Service is reportable to the state in which it is localized; if the service is localized in one state, it is unnecessary to apply any other test. Localization occurs when all service is performed in one state, or when all service with the exception of incidental out-of-state service is performed in one state. Service is considered incidental if it is temporary or transitory in nature, or consists of isolated transactions.
B. Base of Operations Test
If an individual’s service is not localized in any state, we must apply the second test: Are any services performed in the state in which the individual’s base of operations is located? Services that are not localized in any state are reportable to the state serving as the employee’s base of operations, provided that some services are performed in that state. Base of operations is the place or fixed center of more or less permanent nature, from which the employee starts work and customarily returns to in order to accomplish any of the following:
C. Place From Which Service is Directed and Controlled Test
If jurisdiction cannot be established using the localization of service test or the base of operations test, services are reportable to the state from which the employer exercises direction and control over the employee, provided that the employee performs some services in that state. The place from which an employer directs and controls an individual’s service is the place from which the employer’s basic authority and general control emanate.
D. Place of Residence Test
If coverage cannot be determined by any of the above tests, it is necessary to apply the test of residence. Residence is a factor in determining coverage only when the individual’s service is not localized in any state and no service is performed in the state that serves either as the employee’s base of operations (if there is such a base) or the place from which the service is directed and controlled. If coverage cannot be established using localization, base of operations, or place of direction and control, services are reportable to the state in which the employee resides, provided that some services are performed in that state.
If an employing unit pays remuneration for services not specifically exempted under the provisions of FUTA and seeks exemption from Unemployment Compensation coverage, the employing unit has the burden of proof to show that the services are either exempt from FUTA or otherwise not subject to the tax imposed by FUTA. The Department will hold such class of individuals or type of service in covered employment for New Jersey Unemployment & Disability purposes pending receipt of proof and determination of FUTA exemption.
The following services are exempted from coverage; however, those services outlined below in sections F, K, L, V, W, X and Y are either not specifically excluded from FUTA coverage or are subject to the tax imposed by FUTA. In addition, services performed by “mutual fund brokers or dealers in the sales of mutual fund or securities,” described in H below are not excluded from FUTA coverage:
|A) Service performed by an individual in the employ of his son, daughter or spouse, and service performed by a child under the age of 18 in the employ of his father or mother;
B) Service performed in the employ of this state or of any political subdivision thereof or of any instrumentality of this state or its political subdivisions, and service in the employ of the South Jersey Port Corporation or its successors;
C) Service performed in the employ of any other state or its political subdivisions or of an instrumentality of any other state or states or their political subdivisions to the extent that such instrumentality is with respect to such service exempt under the Constitution of the United States from the tax imposed under the Federal Unemployment Tax Act;
D) Service performed in the employ of the United States government or of any instrumentality of the United States unless the Congress of the United States permits coverage;
E) Services performed in the employ of fraternal beneficiary societies, orders, or associations operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system and providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association, or their dependents;
F) Services performed as a member of the board of directors, a board of trustees, a board of managers, or a committee of any bank, building and loan, or savings and loan association, incorporated or organized under the laws of this state or the United States, where such services do not constitute the employment of the individual;
G) Service with respect to which unemployment insurance is payable under an unemployment insurance program that is established by an Act of Congress;
H) Service performed by agents of mutual fund brokers or dealers in the sale of mutual funds or other securities, by agents of insurance companies, exclusive of industrial insurance agents or by agents of investment companies, if the compensation to such agents for such services is wholly on a commission basis;
I) Services performed by real estate salesmen or brokers who are compensated wholly on a commission basis;
J) Services performed in the employ of any veterans’ organization chartered by Act of Congress or of any auxiliary thereof, no part of the net earnings of which organization, or auxiliary thereof, inures to the benefit of any private shareholder or individual;
K) Service performed for or in behalf of the owner or operator of any theater, ballroom, amusement hall or other place of entertainment, not in excess of 10 weeks in any calendar year for the same owner or operator, by any leader or musician of a band or orchestra, commonly called a “name band,” entertainer, vaudeville artist, actor, actress, singer or other entertainer;
L) Services performed by an individual for a labor union organization, known and recognized as a union local, as a member of a committee or committees reimbursed by the union local for time lost from regular employment, or as a part-time officer of a union local and the remuneration for such services is less than $1,000.00 in a calendar year;
M) Services performed in the sale or distribution of merchandise by home-to-home salespersons or by in-the-home demonstrators whose remuneration consists wholly of commissions or commissions and bonuses;
N) Service performed in the employ of a foreign government, including service as a consular, non-diplomatic representative, or other officer or employee;
O) Service performed in the employ of an instrumentality wholly owned by a foreign government if
P) Service in the employ of an international organization entitled to enjoy the privileges, exemptions and immunities under the International Organizations Immunities Act (22 U.S.C. s. 288 et seq.);
Q) Service covered by an election duly approved by an agency charged with the administration of any other state or federal unemployment compensation or employment security law, in accordance with an arrangement pursuant to R.S. 43:21-21 during the effective period of such election;
R) Service performed in the employ of a school, college, or university if such service is performed
S) Service performed by an individual who is enrolled at a nonprofit or public educational institution that normally maintains a regular faculty and curriculum and normally has a regularly organized body of students in attendance at the place where its educational activities are carried on, as a student in a full-time program, taken for credit at such institution, which combines academic instruction with work experience, if such service is an integral part of such program, and such institution has so certified to the employer, except that this subparagraph shall not apply to service performed in a program established for or on behalf of an employer or group of employers;
T) Service performed in the employ of a hospital, if such service is performed by a patient of the hospital; service performed as a student nurse in the employ of a hospital or a nurses’ training school by an individual who is enrolled and regularly attending classes in a nurses’ training school approved under the laws of this state; and service performed as an intern in the employ of a hospital by an individual who has completed a four-year course in a medical school approved pursuant to the laws of this state;
U) Services performed after the effective date of this amendatory act by agents of mutual benefit associations if the compensation to such agents for such services is wholly on a commission basis;
V) Services performed by operators of motor vehicles weighing 18,000 pounds or more, licensed for commercial use and used for the highway movement of motor freight, who own their equipment or who lease or finance the purchase of their equipment through an entity that is not owned or controlled directly or indirectly by the entity for which the services were performed and who were compensated by receiving a percentage of the gross revenue generated by the transportation move or by a schedule of payment based on the distance and weight of the transportation move;
W) Services performed, using facilities provided by a travel agent, by a person, commonly known as an outside travel agent, who acts as an independent contractor, is paid on a commission basis, sets his own work schedule and receives no benefits, sick leave, vacation or other leave from the travel agent owning the facilities.
X) Services performed by the owner of a limousine franchise (franchisee) shall not be deemed to be employment subject to the “unemployment compensation law” with regard to the franchisor if:
(Y) Services performed by a legal transcriber, or certified court reporter certified pursuant to P.L. 1940, c.175 (C.45:15B-1 et seq.), provided to a third party by the transcriber or reporter who is referred to the third party pursuant to an agreement with another legal transcriber or legal transcription service, or certified court reporter or court reporting service, on a freelance basis, compensation for which is based upon a fee per transcript page, flat attendance fee, or other flat minimum fee, or combination thereof, set forth in the agreement.
NOTE: If one-half or more of the services in any pay period performed by an individual for an employing unit constitutes employment, all the services of such individual shall be deemed to be employment; but if more than one-half of the service in any pay period performed by an individual for an employing unit does not constitute employment, then none of the service of such individual shall be deemed to be employment.
(Public and Nonprofit Institutions)
Services performed in the employ of a church or organization operated primarily for religious purposes. As of May 26, 1981, this exemption includes church-related elementary and secondary schools; that is, schools operated under the corporate charter of a church or other formal religious groups. However, any such group may elect coverage for its employees by contacting the Department of Labor and Workforce Development, Division of Employer Accounts, Employer Status Section, PO Box 397, Trenton, New Jersey 08625-0397. Services performed by a duly ordained minister, priest or member of a religious order in the exercise of duties required of such order.
If you employ any person(s) performing services you think may be exempt, contact any Regional Office for guidance. You may request a written opinion by writing to the Chief Auditor, Division of Employer Accounts, PO Box 942, Trenton, New Jersey 08625-0942. E-mail the chief auditor.
Do not attempt to make your own determination. It may be wrong. If it is, it could cost you money in the form of interest and penalties.