Misclassification Law

Misclassification Law: Influence on Activities & Insurance

The Pennsylvania Construction Workplace Misclassification Act was passed in 2010 and went into effect on February 10, 2011. The provisions of the act impact the construction industry exclusively and may cause many independent contractors to be relabeled as employees.

Workers’ & Unemployment Compensation

Misclassification Law also outlines workers’ and unemployment compensation responsibilities and provides insight into:

• Determining whether workers are independent contractors or employees, as well as
• Possible civil and criminal penalties for knowingly disregarding regulations

Independent Contractors

In accordance with workers’ and unemployment compensation law obligations, it’s necessary to know the difference between an employee and an independent contractor. In the construction field, individuals who provide services in exchange for payment are only classified as independent contractors if he/she:

• Is regularly involved in a trade, business, or profession that was developed independently
• Is able to provide services that are not contractually regulated and directed
• Possesses written contracts to provide services

Criteria for Independent Contractors

In order to utilize professional skills independently and participate in an autonomously established profession or company, certain requirements must be adhered to. To be considered an independent contractor, an individual must meet the following standards:

1. The required tools to complete the services offered are present.
2. An engagement involving the individual and a recipient of the services they provide will
   lead to a profit or loss.
3. Exclusive rights to the business belong to the individual.
4. A separate business location is upheld by the individual.
5. The same or identical services have been provided by the individual before, or he/ she
   establishes agreements with others to deliver identical services.
6. Liability insurance – a minimum of $50,000 – is held by the individual.

Remain Up-to-Date

The regulations outlined in Misclassification Law are applicable not only to contracts with independent contractors but also to audit processes in workers’ compensation insurance companies. Therefore, it’s important to meet the requirements maintained by the law to save both time and money. To better adhere to these new provisions, The Farnham Insurance Agency urges you to:

• Get in touch with your trade association and become well-acquainted with the
  Misclassification Law,
• Stay updated in regards to any changes, as there’s a chance alterations will be made to
  the law,
• Apply these new provisions to your contracts, and also determine whether or not they will
  affect your subcontractors.