New York recently enacted the New York State Construction Industry Fair Play Act. The new law, which becomes effective on October 26, 2010, provides that any person performing services for a construction contractor or subcontractor is deemed an employee unless they are a separate business entity that meets all of the following twelve criteria:
- the business entity is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;
- the business entity is not subject to cancellation or destruction upon severance of the relationship with the contractor;
- the business entity has a substantial investment of capital in the business entity beyond ordinary tools and equipment and a personal vehicle;
- the business entity owns the capital goods and gains the profits and bears the losses of the business entity;
- the business entity makes its services available to the general public or the business community on a continuing basis;
- the business entity includes services rendered on a Federal Income Tax Schedule as an independent business or profession;
- the business entity performs services for the contractor under the business entity’s name;
- when the services being provided require a license or permit, the business entity obtains and pays for the license or permit in the business entity’s name;
- the business entity furnishes the tools and equipment necessary to provide the service;
- if necessary, the business entity hires its own employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees’ income to the Internal Revenue Service;
- the contractor does not represent the business entity as an employee of the contractor to its customers; and
- the business entity has the right to perform similar services for others on whatever basis and whenever it chooses.
Further, construction contractors and subcontractors must post a notice at the work site listing the responsibility of independent contractors to pay taxes as well as the various rights of employees, including their right to worker’s compensation, unemployment benefits, minimum wages, overtime, and other federal and state protections.
Employers who fail to post the required notice or who improperly classify an employee are subject to civil and criminal penalties.
The civil penalties provide for a fine of $2,500 for the first violation or unclassified employee, and $5,000 for each subsequent violation or misclassified employee within five years.
Criminal penalties include 30 days imprisonment or a fine of $2,500 for the first violation, and 60 days in prison and $50,000 for each subsequent violation of this law. Further, any officer of the corporation or shareholder holding ten percent or more of the offending corporation is also subject to civil and criminal liability, as well as debarment: the corporation would be ineligible to submit bids on public works contracts for one year from their first violation and five years from any subsequent violation.
Source: Cynthia Thompson, Phillips Lytle LLP