On December 11, 2023, the Pennsylvania House of Representatives passed House Bill No. 1751, which will strengthen the Construction Workplace Misclassification Act. Upon passage in the state senate, HB 1751 would increase penalties for contractors who misclassify workers.
KingSpry’s Employment Law Chair, Avery E. Smith, details the potential impact of HB 1751 and the importance of properly classifying employees, particularly independent contractors.
Background
Representative Kyle Donahue introduced HB 1751 to deter contractors who intentionally misclassify construction workers as independent contractors. According to Donahue, by misclassifying workers, employers shortchange workers of salaries, benefits, and important worker protections, such as unemployment, Workers’ Compensation, and Occupational Safety and Health Administration (OSHA).
Despite completing the same work, misclassified independent contractors receive fewer protections than those who are properly classified.
Potential Impact
If passed by the state senate and signed into law, HB 1751 will amend the Construction Workplace Misclassification Act (the “Act”) and increase penalties for employers who violate it.
Employers found guilty of misclassifying their employees may face administrative penalties imposed by the Secretary of the Pennsylvania Department of Labor and Industry, criminal investigation, and/or prosecution by the Attorney General.
HB 1751 will also increase the penalty for employers found guilty of violating the Act. First time offenders may be charged with a misdemeanor of the first degree, and subsequent offenders may be charged with a felony of the third degree.
Private Right to Action for Misclassified Employees
HB 1751 will also allow misclassified employees to bring private action against their employer in a court of common pleas if they have been misclassified in violation of the Act, and/or faced adverse action from their employers as a result of participating in an investigation or reporting a violation of the Act.
Classification of Workers as Independent Contractors
HB 1751 emphasizes the importance of correctly classifying workers so that that employers avoid potential liability and workers receive appropriate rights, benefits, and protections.
Who is an Independent Contractor?
For independent contractors in the construction industry, the Act imposes the following requirements:
- The worker has a written contract to perform the services;
- The worker is free from control or direction over the performance of the services involved both under the contract of service and in fact; and
- As to such services, the worker is customarily engaged in an independently established trade, occupation, profession or business.
Aside from requirements for specific industries, there is no concrete definition of an independent contractor. The United States Supreme Court has indicated that there is no single rule for determining whether a worker is an independent contractor or employee, so instead, it considers several factors.
Determining Independence
Rather than applying a legal standard, the Supreme Court has considered the following factors when determining whether a worker is an independent contractor or employee:
- The extent to which the services rendered are an integral part of the principal’s business;
- The permanency of the relationship;
- The amount of the alleged contractor’s investment in facilities and equipment;
- The nature and degree of control by the principal;
- The alleged contractor’s opportunities for profit and loss;
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
- The degree of independent business organization and operation.
To determine the degree of control and independence, employers may also consider behavioral, financial, and relationship factors.
Official Review
Employers who are uncertain as to whether a worker can be classified as an independent contractor can complete and submit the Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to the IRS. After filing, the IRS will officially determine the worker’s status.
Pennsylvania workers who feel they may be misclassified can directly inquire to the Department of Labor and Industry by completing a Worker Misclassification Inquiry.
Key Takeaways
While HB 1751 intends to rectify current and deter future misclassifications in the construction industry, the proper classification of workers is important for all employers, regardless of industry.
If you have questions about the classification of workers, an Employment Law Attorney at KingSpry is prepared to assist you.
