PA Workers Compensation - Construction Workplace Misclassification Law
Legislative overview
Misclassifying employees as independent contractors to cut costs, including on WC insurance, soon will be a maneuver of the past.Passed by the state legislature and signed by Gov. Rendell in October of 2010, HB 400 (the Pennsylvania Construction Workplace Misclassification Act) spells out how to determine if an individual is an independent contractor v. an employee and provides for civil and criminal penalties in the event of an intentional infraction. Those who face penalties include not only employers, but also their officers and agents and those who knowingly contract with another employer violating this law. This will have a broad impact on employers involved in the construction industry, as the language applies solely to this field, and the new law takes effect on Feb. 10, 2011.
The passage of this bill marks the end of a debate between labor interests and business interests that created a legislative impasse for several years. The implementation of similar legislation has been occurring throughout the country.Read the Pennsylvania Construction Workplace Misclassification Act - language of HB 400, as passed by the legislature and signed by Gov. Rendell in October 2010.
State Senate Fiscal Note on HB 400 - provides an overview on HB 400, with emphasis placed on the fiscal impact of the new law.Definition and criteria
The Construction Workplace Misclassification Act defines an independent contractor for the 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 in an independently established trade, occupation, profession or business, the individual must:
• possess the essential tools, equipment and other assets necessary to perform the services independent of the person for whom the services are performed;• have an arrangement in which he or she realizes a profit or suffers a loss as a result of performing the services;
• perform services through a business in which he or 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 or herself out to other persons as 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
• maintain at least $50,000 in liability insurance during the term of the contract.
Failure to withhold income taxes, to contribute to unemployment compensation, or to pay workers compensation premiums for someone should not be considered when determining whether that person is an employee or an independent contractor in the construction industry.
Within the law the construction industry is defined to include: "erection, reconstruction, demolition, alteration, modification, custom fabrication, building, assembling, site preparation and repair work done on any real property or premises under contract, irrespective of whether the work is done for a public body and paid for from public funds."
What it means to you
• Producers should advise their clients, specifically in the construction industry, of the new law and its effective date in 2011. Construction industry clients should carefully review all contracts with independent contractors prior to its effective date, and proceed cautiously with independent contractors moving forward in order to ensure compliance.• Check with your carriers to see how they plan on handling WC premium audits moving forward in light of the changes brought about by the enactment of HB 400.
• It should be noted that there is no safe harbor provision in the recently-signed law. Therefore, producers are strongly encouraged to not assist clients in classifying their employees. Additionally, a party that intentionally contracts with an employer, knowing the employer intends to misclassify employees in violation of the law, is subject to the same penalties as the employer. Bottom line: do not get involved in the classification process or you could be opening the door for trouble.
This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Insurance Agents & Brokers nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.
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