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While independent contractors have come under increased scrutiny from the federal government, Pennsylvania has gone a step further, enacting legislation governing independent contractor arrangements. The Construction Workplace Misclassification Act applies to employers subject to the Pennsylvania Workers’ Compensation Act and the Pennsylvania Unemployment Compensation Law that operate within the construction industry. But it also applies, to any party that intentionally contracts with a covered employer knowing that the employer intends to misclassify employees in violation of the Act. 

The following key points appeared in the Eastern Pennsylvania Business Journal, November 15, 2010:

• The criteria independent contractors must meet will go above and beyond what the IRS already enforces.
• Standards set forth by Act 72 will ultimately be applied to other industries.
• An individual hired “to perform services for remuneration in the construction industry will be automatically treated as an employee of the construction business, and not as an independent contractor, for Pennsylvania workers’ compensation and unemployment purposes” unless:
  1. The individual is free from the hiring party’s control or direction over the performance of the services and
  2. All of the following requirements are also satisfied:
     - There is a written independent contractor agreement between the hiring party and the individual.
     - The individual possesses the essential tools necessary to perform the services
     - The arrangement between the hiring party and the individual is structured so that the individual is structured so that the individual may realize a profit or suffer a loss from the engagement.
     - The individual has ownership interest in his or her business that is contracted to perform the services for the hiring party.
     - The individual must have a physical business location separate from the hiring party’s location. 
     - The individual must have either previously performed the same types of services for the other parties or must hold himself out to other potential customers as being able and available to perform such services.
     - The individual must maintain for the duration of the contract liability insurance of at least $50K.

The Act goes into effect on February 10, 2011.