A Pennsylvania business that installs exterior insulation on commercial buildings recently was required to pay over S35,000 in unemployment contributions, penalties, and interest after it paid its employees as independent contractors for three years. The Department of Labor challenged the independent contractor status, won the
When an employer sets the time, the place, and the manner of job performance, the court concluded the worker will almost always be consid. ered at law to be an employee,
challenge, and was then entitled to the back payments for unemployment contributions the employer owed for the previous three years.
All businesses that employ workers must contribute to the state unemployment fund, must pay workers’ compensation insurance, and must comply with federal and state wage-withholding and Social Security regulations. But when a business hires an independent contractor, the business simply pays the independent contractor directly, and the business has no obligations for unemployment, workers’ compensation, or Wage tax withholding.
In the case of the insulation installation company, it placed numerous workers at various job sites where the company had contracts to install insulation. The company provided no clothing, tools, or protective gear for the Workers; they had to supply their own. The company did supply some equipment, including scaffolding, and supplied all the materials needed to complete the work.
The company paid each worker per square foot of insulation the worker installed. The amount paid to each worker per square foot varied at each job site; the company kept a portion of the contract price at each site and then divided the remainder of the contract price among all the workers based on the square footage installed by each worker. Thesize of each project was the main factor in how many workers were sent to each site. The company required each worker to sign an independent contractor agreement for each project. When workers worked at multiple projects, they signed one agreement for each site.
In finding that the workers were employees and not independent contractors, the court noted that the agreement required that the workers”may not leave the job site without permission’ from the company. The agreement also set work hours commencing at 8 a.m. and concluding at 5 p.m. and prohibited the Workers from giving their name or information about their services to any other business while working for the company.
The owner testified that workers were free to come and go, Setting their own hours, but the court found that the agreement had been enforced and the actual practice was that employees worked a schedule set by the company.
The court noted that Pennsylvania labor law presumes that all workers are employees. A company that claims its workers are independent contractors has the burden to prove that status. The “key element” is whether the employer has the right to control the work to be done and the manner in which it is performed. Other important factors are the terms of any contract between the parties, the nature of the worker’s skill or occupation, whether payment is by the hour or by the job, and whether the worker can or does work for other companies or individuals.
The court emphasized that a worker’s status is unique to each case and is based on the actual history of how the work was controlled and by whom. When an employer sets the time, the place, and the manner of job performance, the court concluded, the worker will almost always be considered at law to be an employee. In the case involving the insulation installation company, the court found “persuasive’ the fact that the workers did not set their own rates of pay, nor were they guaranteed any amount of pay. Instead, their compensation varied depending on how many workers the company used at each job site and how much the company was paid in gross contract payment.
The law relating to independent contractors is complex, Companies and individuals who treat workers as independent contractors are best protected when the independent contractor is engaged in a distinct occupation or business, provides regular services to other individuals or companies, and has broad control of the time and manner of the work provided.