Refresher on PA’s Construction Workplace Misclassification Act
5/14/2012 | Construction Blog
I recently attended a legislative breakfast hosted by one of the construction related organizations in which I participate. A number of state legislators were present, as was a representative of the District Attorney’s office in Montgomery County. Because the District Attorney is an elected position in Pennsylvania, this has a certain amount of logic to it. That being said, it is something that is not done very often and caught my attention.
The topic discussed by the prosecutor in attendance was the Construction Workplace Misclassification Act signed into law by Governor Rendell in 2010. It has been in effect for a little more than a year now and, based on the aforementioned appearance, seems to be a priority for at least some District Attorneys’ offices.
As a result, a refresher is in order.
The statute makes it a crime to misclassify employees as independent contractors for purposes of avoiding payment of Workers’ Compensation or Unemployment Compensation premiums and/or benefits. Violation of the act can result in fines and incarceration in some cases. Perhaps more importantly, it can result in a criminal record that will leave a black mark on you and your business for some time.
To be classified as an independent contractor in the construction industry, the following requirements must be met:
- The “independent contractor” must have a contract with your company for the work being performed.
- The “independent contractor” must control and direct his or her own work. Traditionally this requires control over the means and methods of the work.
- The “independent contractor” must have his or her own tools needed to perform the work and have obtained them independent of your company.
- The “independent contractor” must have the opportunity to earn a profit or take a loss through the contract with your company for the work.
- The “independent contractor” must be an owner or partner in his or her own business.
- The “independent contractor” must have a business location separate from the location from your company as the hiring entity for the construction work.
- The “independent contractor” must have previously worked as an independent contractor or hold himself or herself out to the public as an independent contractor.
- The “independent contractor” must have his or her own liability insurance of at least $50,000.
If all of these criteria are not met, the worker cannot be classified as an independent contractor.
If you have not reviewed your current situation to ensure that you are compliance with this law, now is as good a time as any to do so. Employees or third parties can report non-compliance and are protected by an anti-retaliation rule. Aside from taking care of employees and doing things the right way, money saved in the short run by misclassifying workers can very quickly be lost in the long run if your company is found to be in violation of this statute.