New York construction employers who misclassify their employees as independent contractors will face stiff penalties under a new law signed by Gov. David A. Paterson last month. The New York State Construction Industry Fair Play Act, which the governor signed on Aug. 27, that contractors classify any person performing services for them as employees unless the person is a separate business entity or if the person:
- Is free under contract and in reality from the contractor’s control in performing the work;
- Performs the service outside the usual course of business for the contractor; and
- Is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.
The law considers a person to be a separate business entity if he meets all of 12 criteria, such as:
- The entity continuing past the end of the project;
- Having a substantial investment of capital in the entity beyond ordinary tools, equipment and vehicles;
- Making its services available to the general public or business community on a continuing basis; and
- Having the right to perform similar services for others on the bases and times of its choosing.
Two factors the law does not consider relevant to the employee-independent contractor distinction: Whether the contractor withholds taxes or pays unemployment and Workers’ Compensation premiums for the worker; and whether the worker has purchased his own Workers’ Compensation policy.
Contractors will have to post notices on construction sites describing independent contractors’ obligations to pay taxes, employees’ rights to unemployment and Workers’ Compensation insurance, and rights to be free of retaliation for complaining about misclassification. Employers found guilty of misclassification will face civil penalties of up to $2,500 per misclassified employee for the first violation or $5,000 per employee for subsequent violations within the next five years. Criminal penalties may also apply, as do similar penalties for retaliating against employees.
The law takes effect on Oct. 26.