Are Your Subs Really Employees?
They are if you don't comply with Pennsylvania's Construction Workplace Misclassification Act (CWMA)!
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  • Residential, commercial and industrial General Contractors throughout Pennsylvania have been given the task of maintaining records and documents for work performed by independent subcontractors (subs) who supply labor and/or materials necessary to complete a project. Even if a subcontractor is registered as a corporation or LLC, it is no longer enough to issue 1099 tax forms and call this supplier a subcontractor. Without specific demonstration, a subcontractor may be viewed as an employee of the General Contractor, exposing the builder to penalties, additional insurance premiums and withholding taxes. But what constitutes a subcontractor vs. an employee?
  • For a General Contractor to identify a sub as an independent subcontractor and not an employee - and maintain that status - the following must occur:
  1. There must be a written independent contractor agreement with the sub.
  2. The sub must be free from control or direction over the performance of his services, both under the contract and in fact.
  3. The sub must maintain at least $50,000 in liability insurance.
  4. The sub must be “customarily engaged in an independently established trade, occupation, profession or business,” meaning - possess his own tools; realize a profit or suffer a loss as a result of his performance of services through a business in which he has a proprietary interest; maintain a separate business location; AND, have previously worked as or hold himself out to the public as a “bona fide independent contractor.”
  • What happens when you, the General Contractor, fail to keep contracts and forms on file and adhere to the guidelines above?
  • YOU are responsible for withholding federal, state and local income taxes.
  • YOU are responsible for withholding one-half and paying the other one-half of Social Security and Medicare taxes.
  • YOU are responsible for paying unemployment compensation taxes.
  • YOU are responsible for Workman’s Compensation insurance premiums.
  • What are the fines and penalties for non-compliance? First offense – a third degree misdemeanor with penalties up to $1,000 for the first violation. Subsequent offenses - a second degree misdemeanor with penalties up to $2,500 - and each misclassified worker is considered a separate offense.
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