The construction trades can be a very profitable business and a fairly easy business to start because of the low cost of entry. Unfortunately, because of the inherent safety issues involved, the cost per hundred dollars in payroll for worker’s compensation insurance is quite high.
One of the methods contractors have used to get around this expense is to misclassify employees as ‘subcontractors’ when in fact they are under the day to day direction of that contractor and don’t operate a legitimate business outside of the work they do for that contractor.
Signed into law in October of 2010, the Pennsylvania Construction Workplace Misclassification Act went into effect on Feb. 11, 2011 and is meant to protect these workers.
In short this law:
Details 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.
They are 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.
We would encourage you to require at least $300,000 liability and preferably $1 Million.
As your business becomes more complex you will want to have your own attorney look at any agreements you have in place with your subcontractors.