PA Installs the Construction Workplace Misclassification Act

As the spring approaches, its time to renovate, create, and expand. This is fantastic news for the entire construction industry!  However, this past February, Pennsylvania has signed to law new regulations for classifying independent contracts.  The law outlines the legal definition of an independent contractor being hired in the industry with three guidelines.

The worker must:

1. Have a written contract, with the business owner, to perform services.
2. Be able to act freely of hiring parties control in performing services.
3. Be customarily engaged in an independently established trade, occupation, profession or business. 

Click here to read ACT 72 

So what does that really mean?  - We're glad you asked.

The first guideline, the written contract, must include reasons why each party considers the relationship to be in compliance with the outlined independent contractor definition. 

Next, the independent must be allowed to work freely from the hiring parties' control.  They should be able to perform their services to the best of their abilities, and judgments. 

Lastly, that final guideline – (“Be customarily engaged in an independently established trade, occupation, profession or business”) – is defined basically to mean the hired individual must be a professional of their service.  Specifically, it is defined to meet the following criteria:

• Possess essential tools for job.
• Be aware of profit or loss.
• Perform the service though their own business.
• Maintain an independent business location. 
• Be available for hire by another party.
• Maintain at least $50,000 individual liability insurance during the term of contract.

So why are the regulations changing you may ask?  Construction companies are misclassifying workers to avoid carrying workers compensation and unemployment insurance for employees. This new law is also targeted at employers to help cut down the tax abuse created by misclassified workers.  The law will force the employer to classify its workforce, and withhold the proper taxes – unless the new criteria are properly met.

Can an employee report an employer?

Yes; however, the employee is not allowed to take private action under this Act.  The violations can be reported to the PA Department of Labor and Industry – where it will be taken care of thought the prosecution system. 

Employers’ facing consequences for violation of this Act face first time fines of $1,000 per misclassified individual.  Repeat offenders face stiffer fines of $2,500 per worker.  Along with fines, some cases can result in jail time for offenders.

The employee is protected from retaliation if they report the misclassification.  The 90 days following the report will allow the employee protection from termination (due to reporting the violation) by claiming wrongful termination.  This places liability on the employer for any loss of income the worker is subject to due to termination.

Under the Act 72 law, those working in the construction industry may need to reclassify their employees properly.

Call a Miller’s Insurance Agent Direct: (610) 269-4500

Subscribe to the Miller’s Insurance Blog