PA: Misclassify an independent contractor and go to jail

Do I have your attention now?

Early next year, the Construction Workplace Misclassification Act goes into effect. Signed in October, 2010, this legislation provides criteria for classifying a person as an independent contractor (versus an employee) in the construction industry. If you operate a business in the construction industry, you need to get prepared. Otherwise, you may be looking at fines and jail time.

Learn more after the jump.

Under the new law, a business may classify a construction worker as an independent contractor if three criteria are met.

  1. The business must contract in writing with the construction worker;
  2. The business must not control or direct the services that the construction worker performs; and
  3. The construction worker must be customarily engaged in an independently established trade, occupation, profession or business.

To satisfy criteria #3, the construction worker must meet six additional criteria. The worker must:

  1. Possess his own tools to perform the work;
  2. Perform the work at a profit or loss;
  3. Provide services through a business, in which the construction worker is a full or part-owner;
  4. Maintain an independent business location;
  5. Have previously performed the same or similar services for others in accordance with the first four criteria (and free from direction or control) or be available to perform the same or similar services for others in accordance with the first four criteria, free from direction or control; and
  6. Maintain individual liability insurance during the term of the contract of at least $50,000.

Under the Act, a construction business will be held liable for each individual who is not properly classified as an employee. Intentional violations are considered felonies. Additionally, fines may levied and personal liability can attach.

Employers who are not familiar with this new law, have only a short time to prepare.