Pennsylvania Rep. Bryan R. Lentz (D-Delaware) introduced House Bill 2400, which, if passed, would establish the presumption that all Pennsylvania workers are employees. Pennsylvania employers would bear the burden of proof if they seek to classify workers as independent contractors.
The potential impact on businesses, especially small businesses, is significant. Currently, if an employer classifies a worker as an independent contractor, the employer does not have to pay state or federal taxes, unemployment contributions, and workers' compensation premiums. Some employers misclassify workers to avoid these financial obligations, however, some workers are legitimate independent contractors.
House Bill 2400, which is expected to move to the House floor for a vote before summer recess, would require an employer seeking to classify a worker as an independent contractor to show the following: (1) the individual has been and will continue to be free from direction and control of the employer, both under contract of service and in fact; (2) the service is outside the usual course of the individual's business of the employer; and (3) the individual is customarily engaged in independently established trade, occupation, profession or business.
Violations under House Bill 2400 could result in prosecution and, if convicted, varying fines and possible imprisonment, depending on whether the violation was intentional. Violators could also be punished civilly, including administrative penalties and suspension of public contracts for up to three years. Under House Bill 2400, an individual could bring a civil action against his/her employer to recover any damages resulting from misclassification, including attorney's fees and costs.
In 2006, New Jersey began placing a similar burden on employers. Subsequent audits found 25,000 misclassified employees, which represented more than half a billion dollars in wages.
Since House Bill 2400 is expected to pass, Pennsylvania employers should begin reassessing all independent contractor relationships, especially when the individual works full time and/or exclusively for the employer.
The potential impact on businesses, especially small businesses, is significant. Currently, if an employer classifies a worker as an independent contractor, the employer does not have to pay state or federal taxes, unemployment contributions, and workers' compensation premiums. Some employers misclassify workers to avoid these financial obligations, however, some workers are legitimate independent contractors.
House Bill 2400, which is expected to move to the House floor for a vote before summer recess, would require an employer seeking to classify a worker as an independent contractor to show the following: (1) the individual has been and will continue to be free from direction and control of the employer, both under contract of service and in fact; (2) the service is outside the usual course of the individual's business of the employer; and (3) the individual is customarily engaged in independently established trade, occupation, profession or business.
Violations under House Bill 2400 could result in prosecution and, if convicted, varying fines and possible imprisonment, depending on whether the violation was intentional. Violators could also be punished civilly, including administrative penalties and suspension of public contracts for up to three years. Under House Bill 2400, an individual could bring a civil action against his/her employer to recover any damages resulting from misclassification, including attorney's fees and costs.
In 2006, New Jersey began placing a similar burden on employers. Subsequent audits found 25,000 misclassified employees, which represented more than half a billion dollars in wages.
Since House Bill 2400 is expected to pass, Pennsylvania employers should begin reassessing all independent contractor relationships, especially when the individual works full time and/or exclusively for the employer.
