Employee or Independent Contractor

Employee or Independent Contractor?

Are you affected by misclassification of an employee as an independent contractor? Both federal and state governments are microscopically looking into the issue.

In 2011, Pennsylvania implemented Act 72 (the Construction Worker Misclassification Act) which makes it both a civil and a criminal offense to knowingly misclassify a construction employee as an independent contractor. If, as an employer, you knowingly misclassify a worker, in addition to possible criminal prosecution, you could face fines up to $2,500 per violation.

Independent contractors must meet the following requirements:

1. There must be a written contract with the business or person for the work to be performed;

2. They must control and direct their own work;

3. They must possess the tools needed to perform the work;

4. They must realize a profit or loss from their performance;

5. They must be an owner or partner in their own business;

6. Their business location must be separate from the location of the work to be performed;

7. They either worked as an independent contractor, or they present themselves to others as available and able to perform similar work as an independent contractor; and,

8. They must maintain liability insurance of at least $50,000.

If the worker does not meet the above requirements, they are an EMPLOYEE and are subject to mandatory tax withholding.

It is also illegal for anyone to enter into a contract with an employer knowing that the employer intentionally misclassifies workers as well as for employers to retaliate against workers who exercise their rights under the new law, including the right to file a complaint.

Although the Act addresses the construction industry, other employers should be wary of a misclassification due to continued review of the issue of employee or independent contractor by the Internal Revenue Service.

If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney is who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office.

The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County.

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IRS CIRCULAR 230 DISCLOSURE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.