New York State Construction Industry Fair Play Act
From October 26, 2010, the New York State Construction Industry Fair Play Act became effective. This law has developed fresh standards that help to determine if a worker is an independent contractor or an employee in the construction industry. This law offers new penalties for employers who are unsuccessful to precisely classify their employees.
As per studies, it is expected that around 15 to 25% of construction workers are misclassified in New York State. Misclassification of employee takes place when employers treat workers who should be taken as employees as independent contractors or do not report them and pay them “off the books”.
As per the new standards, the law assumes that if individuals who work for an employer will be considered employees unless they meet all three criteria mentioned below:
- Individual must be free from control and direction in performing the job, under contract as well as in fact
- Individual must perform services outside of the general course of business for the company
- Individual must be engaged in an independently established occupation, trade, or business that is same as the service they perform
Separate Business Entity
The law contains a 12-part test to decide when a sole proprietor, partnership, corporation or other individual can be considered as a “separate business entity” from the contractor for whom he provides a service. If an individual fulfills all the 12 criteria, the individual will not be considered an employee of the contractor. The entity will instead become a separate business that will be subject to the new law regarding its own employees.
The law is applicable to all the contractors in the construction industry. Construction includes constructing, reconstructing, repairing, altering, moving, rehabilitating, maintaining, renovating or demolition of any building, structure or relating to the excavation of or other expansion or enhancement to land.
These new standards that determine employment are also applicable in determinations under the Workers’ Compensation Law and the Labor Law (such as prevailing wage law, labor standards, and unemployment insurance). It is important to note that it is not applicable to determinations under the New York State Tax Law. And hence the New York State Department of Taxation and Finance will carry on using its current standards for determining the status of employment. The penalties provided by the new law apply to determinations of misclassification under the Labor Law, the New York State Tax Law and the Workers Compensation Law.
An employer violating the Fair Play Act by failing to classify its employees properly will be subject to civil penalties of up to a $2,500 fine per misclassified employee for a first violation and up to $5,000 per misclassified employee for a second violation within a five-year period. Employers also may be subject to a misdemeanor for violations of the act with a penalty of up to 30 days in jail, up to a $25,000 fine and debarment from Public Work for up to one year for a first offense. Subsequent misdemeanor offenses would be punishable by up to 60 days in jail, up to a $50,000 fine and debarment from performing Public Work for up to five years.
Employers can also remain subject to all of the existing penalties, taxes and restitution for Labor Law, Workers Compensation Law, and Tax Law violations that result from the worker misclassification. Corporate officers and certain shareholders may be personally liable for the fines and penalties under the Act, where they knowingly permit the violations to occur.
Construction industry employers must post a notice about the Fair Play Act in a prominent and accessible place on the job site. The required notice is available on the department’s web site. Failure to post the notice can result in penalties of up to $1,500 for a first offense and up to $5,000 for a second offense.
Separate Business Entity Test
To be considered a separate business entity from the business to which services are offered, a sole proprietor, partnership, corporation or other entity should:
- be performing the service free from the direction or control over the means and manner of rendering the service subject only to the right of the contractor to specify the expected result
- not be subject to cancellation when its work with the contractor ends
- have a substantial investment of capital in the entity beyond ordinary tools and equipment and a personal vehicle
- own the capital goods and gain the profits and bear the losses of the entity
- make its services available to the general public or business community on a regular basis
- include the services provided on a federal income tax schedule as an independent business
- perform the services under the entity’s name
- obtain and pay for any required license or permit in the entity’s name
- furnish the tools and equipment necessary to provide the service
- hire its own employees without contractor approval, pay the employees without reimbursement from the contractor and report the employees’ income to the Internal Revenue Service
- have the right to carry out similar services for others on whatever basis and whenever it chooses
- the contractor does not represent the entity or the employees of the entity as its own employees to its customers. The entity must meet all 12 criteria to be considered a separate business entity.