New Pennsylvania Law Imposes Penalties for Misclassification of Independent Contractors in the Construction Industry

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Independent contractor arrangements have come under fire lately from both state and federal governments. Pennsylvania recently went a step further, enacting legislation governing independent contractor arrangements in the construction industry. On October 13, 2010, the Construction Workplace Misclassification Act (the “Act”) was signed into law. The Act provides criteria for classifying independent contractors within the construction industry and imposes a variety of penalties for misclassifying employees as independent contractors.

I. What Are the Criteria for Independent Contractor Classification Under the Act?

The Act specifies that, in order to be properly classified as an independent contractor under the Act, and also for purposes of Workers’ Compensation and Unemployment Compensation, an individual must:

1. Have a written contract to perform services in the construction industry for remuneration;

2. Be free from control or direction over theperformance of such services – both under the contract and in fact; and

3. Be engaged in an independently established trade, occupation, profession or business with respect to such services.

Further, in order to meet the third part of the requirement, above, the individual must:

· Possess the essential tools, equipment and other assets necessary to perform the services;

· Be able to sustain a profit or a loss as a result of performing the services;

· Perform the services through a business in which he or she has a proprietary interest;

· Maintain a business location separate from the location of the person for whom he or she performs the services;

· Previously have performed the services for another while free from direction or control and under a contract of service and in fact; or hold him or herself out as an independent contractor; and

· Maintain liability insurance during the term of the contract of at least $50,000.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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