Overview of the Construction Workplace Misclassification Act - Workers Compensation Legal Blogs Posted by Larry Pitt - Lawyers.com

Overview of the Construction Workplace Misclassification Act

Pennsylvania employers are only required to carry workers’ compensation insurance for employees, not those who are considered independent contractors. Some may attempt to reduce this overhead cost – as well as avoid paying taxes, overtime wages, and health insurance premiums – by misclassifying employees as independent contractors. The Construction Workplace Misclassification Act (Act 72) prohibits such misclassification of construction workers and penalizes employers who do so.

Misclassifying Employees as Independent Contractors is Prohibited
The U.S. Department of Labor encourages workers to be aware of their rights under the Fair Labor Standards Act (FLSA). Misclassified employees are often denied many benefits and legal protections to which they are entitled such as minimum wages, overtime pay, family and medical leave, unemployment insurance, and safe workplaces.

Act 72 was established to prevent construction employers from treating employees like independent contractors. It provides a precise definition for “independent contractor” as well as penalties for violations of the Act.

What is an Independent Contractor?
Business owners must be able to properly classify workers as either employees or independent contractors. Generally, employees differ from independent contractors in the degree of control over which the business has over certain aspects of their job. Act 72 defines an independent contractor as someone who:

Has a written contract to perform construction services
Is free from control or direction as to the performance of such services
Is customarily engaged in an independently established trade, occupation, profession, or business
The third criterium of being customarily engaged with an independently established trade, occupation, profession, or business, with respect to the services he or she performs may only be established if the person or business for whom the service is being performed will either realize a profit or suffer a loss as a result of the performance of the service, and the individual:

has the essential tools necessary to perform the service independently;
has a business location separate from that of the person for whom the service is being performed;
either performed similar services for another person or holds himself out to be (and is) available to perform the same or similar services while free from the direction or control of the person for whom the services are being performed; and
maintains liability insurance of at least $50,000 for the duration of the contract.
Penalties for Violations of the Construction Workplace Misclassification Act
Employers who violate Act 72 may face criminal and administrative penalties of up to $1,000 for the first violation and $2,500 for subsequent violations. They are also prohibited from retaliating against any person who exercises any right protected under the Act. Additional penalties under the Act include cessation of work at the site of an intentional misclassification and remedial action by the Secretary of Labor & Industry.

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Licensed since 1977

Member at firm Larry Pitt & Associates, P.C.

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Champion Badge Silver

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