Both State and Federal governments have tried for years to more clearly define who is an employee and who is an independent contractor. On October 13, 2010 the Construction Workplace Misclassification Act was signed into law in Pennsylvania and provides clear criteria (along with fines and penalties) for how to decide who can be paid on a 1099 and who needs to be on your payroll.

What Are These New Criteria 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 the performance 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.

What are the Penalties for Non-Compliance?

Civil penalties can range from $1,000 to $2,500 per violation for first-time and repeat violations respectively.  In addition, a stop-work order may be issued as a result of violations of the Act.  The stop-work order will continue until a subsequent court order releases it.

For more information go to the PA Labor & Employment web site.   For pricing and information on a worker's compensation policy for your business or liability insurance for independent contractors contact a Starr Insurance Commercial Agent.