Am I An Employee or an Independent Contractor Under the Law?

As of March 2024, approximately 16.75 million people were employed as independent contractors (self-employed) in the United States. The misclassification of workers has become a significant economic issue in Pennsylvania and nationwide, enabling business owners to evade certain financial obligations. Although you may have been hired as an independent contractor, that does not automatically mean that you are seen that way by the law. Our employment law attorneys in Harrisburg, PA, can assist with compliance issues and help determine whether you should file as an employee or self-employed.

How the IRS Determines Worker Classification

It is estimated that as many as one in three workers are misclassified as independent contractors. The Internal Revenue Service (IRS) bases worker classification on the following factors:

Behavioral Control

If a company has the right to control how you complete job tasks or controls how work is performed, then you are most likely an employee. Additionally, suppose the company offers job training, provides detailed instructions on the work to be performed, or has an evaluation system in place for work completed. In that case, you are likely an employee.

Type of Relationship

If you are offered health insurance, PTO or sick days, and disability insurance, you are most likely an employee. In addition to benefits, the permanency of your work relationship also defines whether you are an independent contractor or employee. If you are hired with the understanding that your relationship will end after a project is finished, then you are most likely an independent contractor.

Financial Control

If you are paid on an hourly, weekly, or other incremental basis, then you are most likely an employee. In contrast, independent contractors are typically paid a flat fee or per project for their services. Additionally, if you invested in your own tools or equipment and are not reimbursed for these purchases, you are likely an independent contractor. Construction workers are a significant exception to this rule since many workers purchase their own tools but are still considered employees.

Pennsylvania Classification of Construction Workers

Pennsylvania law sets strict standards to prevent the misclassification of construction workers as independent contractors. Under the Construction Workplace Misclassification Act, all of the following criteria must be met for a worker to qualify as an independent contractor:

• A written contract outlines the individual’s services.
• The worker operates independently, free from another’s direction or control.
• Work performed is part of an established trade, occupation, profession, or business run by the worker.

To demonstrate that the individual is engaged in an independently established trade or business, the following additional conditions must also be met:

• The worker supplies their own tools and equipment for the job.
• They have the potential to earn a profit or incur a loss based on their performance.
• Services are provided through a business in which the worker holds a proprietary interest.
• A separate business location is maintained apart from the hiring entity’s worksite.
• The worker either performs similar services for others without supervision or publicly advertises their services.
• At least $50,000 in liability insurance is maintained throughout the contract term.

Oftentimes, employers label workers as independent contractors to avoid paying their contributions to the federal payroll tax (FICA). In contrast to an employee who pays 6.2% of their paycheck to Social Security and 1.45% to Medicare (with the employer contributing the remaining half), self-employed individuals are responsible for paying both the worker and employer contributions.

If you believe that you have been misclassified as an independent contractor, you may be eligible to receive some of the benefits that were denied to you. A Harrisburg employment law attorney can assess your situation to see if you qualify.

Speak with a Harrisburg Employment Law Attorney Today

Although certain freedoms come with being self-employed, it can have significant financial drawbacks. The laws regarding worker classification can be confusing, making it difficult to determine whether you are being taken advantage of. If you believe that your working conditions resemble those of a traditional employee, the legal team at Mette Law is more than happy to assess your situation. To arrange a confidential meeting with one of our Harrisburg employment law attorneys, reach out to us online or call (717) 232-5000.