The Pennsylvania Supreme Court met recently to clarify some changes to the state’s worker classifications. The court addressed the status of independent contractors under employment compensation law.
The ruling impacts an employer’s ability to claim tax exemptions for independent contractors. This decision reverses a split decision by the Commonwealth Court to maintain previous classifications.
The new ruling
The need for clarification arose from a legal case between a nail salon and Pennsylvania’s Office of Unemployment Compensation Tax Services. The Office claimed the salon owed more than $10,000 in unpaid taxes because of misclassified employees. The agency argued that two nail technicians and three other individuals employed by the salon were not independent contractors, but full employees. The Commonwealth Court found that all ten salon employees met the standards for independent contractors, but the Office appealed the decision.
The Commonwealth of Pennsylvania presumes workers are employees unless the employers can prove otherwise. To claim a contractor, employers must establish that the worker:
- Has been and will continue to be free from control or direction,
- Must be customarily engaged in an independently established trade, occupation, profession, or business.
The ruling for the nail salon focuses on the second criteria and the definition of “customarily engaged.” The court argues that these salon workers disengaged from the independent nail technicians’ trade and that their income depended entirely upon the salon. The ruling not only has implications for what the salon can claim as an exemption but the benefits they must offer these reclassified employees. These benefits include overtime pay, unemployment insurance, social security, Medicare, workers’ compensation insurance, and more. With these rulings, the Pennsylvania Supreme Court set a new precedent for worker protections.
Legal protections for Pennsylvania workers
Employers must now take extra care when working with independent contractors to ensure they are involved in an independent industry. Pennsylvania workers misclassified under this new clarification can reach out to a local lawyer familiar with employment law with questions about their employment classification, missing benefits or a potential suit against their employer.