The New York State Fair Play Act (FPA), which took effect on October 26, 2010, addresses the independent contractor controversy in the construction industry in New York. The FPA sets forth a clear standard for determining whether a construction worker is an employee or an independent contractor, and it provides for costly penalties when there is a misclassification.
The new law applies to all contractors in the construction industry, which is defined as constructing, reconstructing, altering, maintaining, moving, rehabilitating, repairing, renovating or demolition of any building, structure or improvement, or relating to the excavation of or other development or improvement to land.
Under the FPA, construction workers are presumed to be employees unless they are:
- free from control and direction in performing the job, both under contract and in fact, and
- performing services outside of the usual course of business for the company receiving the services, and
- engaged in an independently established trade, occupation or business that is similar to the service they perform
A 12-Part Test
The FPA establishes a 12-part test to determine whether a service provider’s business or company is a bona fide “separate business entity.” In order for a business to be considered a separate business entity from the business to which services are provided, the entity must meet all of the following dozen criteria:
- it must perform a service free from the direction or control over the means and manner of providing the service, subject only to the right of the service recipient to specify the desired result
- it must not be subject to cancellation when work with the service recipient ends
- it must have a substantial investment of capital in the entity beyond ordinary tools and equipment and a personal vehicle
- it must own the capital goods and bear the profit and the loss responsibility
- it must regularly make its services available to the general public or business community
- it must report the services provided on a federal income tax schedule as an independent business
- it must perform the services under the entity’s name
- it must obtain and pay for any required licenses or permits in the entity’s name
- it must furnish the tools and equipment necessary to provide the service
- it must hire its own employees without the service recipient’s approval, pay the employees without reimbursement from the service recipient and report the employees’ income to the Internal Revenue Service
- it must have the right to perform similar services for others on whatever basis and whenever it chooses
- the service recipient cannot represent the entity or the employees of the entity as its own employees to its customers
The FPA also requires that construction industry employers post an FPA information notice in a prominent and accessible place on all job sites. A copy of the notice approved by the New York State Department of Labor can be found online.
An employer’s 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.
Applicability and Penalties
The new standard established by the FPA for determining whether a worker is an employee or an independent contractor will also apply to determinations under the New York State Labor Law (including labor standards, prevailing wage law and unemployment insurance) as well as the New York State Workers’ Compensation Law. However, the FPA does not apply to determinations under the New York State Tax Law.
Under the FPA, an employer’s willful violation of the statute subjects the employer 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 are also subject to criminal prosecution 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.
It is important to note that employers continue to remain subject to all of the other existing penalties, taxes and remedies available under the New York State Labor Law, Workers Compensation Law and Tax Law for employee misclassification.