Some of your independent contractors could be reclassified as employees!
The Pennsylvania Construction Workplace Misclassification Act, which went into effect Feb. 10, 2011, targets the Construction industry. Meant to contain evasion from Unemployment Comp and Workers’ Compensation obligations, the law:
- spells out how to determine if an individual is an independent contractor or an employee, and
- provides for civil penalties, as well as criminal penalties for intentional infractions.
For purposes of workers’ compensation and unemployment compensation laws, an individual who performs services for remuneration in the construction industry can be considered an independent contractor ONLY IF he or she:
- has a written contract to perform the services,
- is free from control or direction over performance of the services, both under the contract and in fact, AND
- is customarily engaged in an independently established trade, occupation, profession, or business with respect to the services performed. To be “customarily engaged…” an individual must:
- Possess the essential tools and other assets necessary to perform the services independent of the person for whom the services are performed.
- Have an arrangement in which he/she realizes a profit or suffers a loss as a result of performing the services.
- Perform services through a business in which he/she has a proprietary interest.
- Maintain a business location that is separate from the location of the person for whom services are performed.
- Have previously performed the same or similar services for another person, in accordance with the four above points, while free from direction or control over performance of the services OR must hold himself/herself out to the other persons as available and able (and must BE available and able) to perform the same or similar services in accordance with the four above points, while free from direction or control over performance of the services.
- AND an individual must maintain at least $50,000 in liability insurance during the term of the contract.
Gunn-Mowery encourages you to:
- Stay apprised of any developments (some adjustments could be made to the law in the next legislative session), and
- Review your contracts in light of these conditions, and assess if any of your subcontractors could be impacted.
In addition to the fact that the State may view your contracts with independent contractors differently, insurance companies (particularly for Workers’ Compensation) will likely incorporate these new definitions in their audit process. Making sure all criteria are met and evidenced will facilitate the process and keep audit premiums in check.
If you have any questions regarding your insurance, please do not hesitate to contact us.
Lemoyne ‚Ä¢ Lancaster ‚Ä¢ Dillsburg ‚Ä¢ State College