In order to complete most projects, builders and contractors must utilize and manage workers from various trade groups. Those workers may be directly employed by the builder, or they may be subcontractors who have independently contracted with the general contractor. Facially, the difference between an employee and an independent contractor seems easy to determine. However, in reality the distinction is blurry, and it is important to understand the factors that courts use when determining if an aggrieved or injured party is considered an employee or an independent contractor.
Why does it matter?
To put it simply, an independent contractor will generally be barred from recovering monetary damages from a builder if injured during the course of employment (unless, of course, the injury is caused by the negligence of the builder). Employees, on the other hand, may recover monetary damages if injured on the job site, and are subject to state and federal minimum wage and overtime provisions.
Because of the financial importance of this distinction, builders began to contract with most workers rather than hire them as employees. Among other reasons, this was intended to shield builders from liability should a workplace injury occur.
Courts in Pennsylvania (as well as federal courts) now conduct an analysis to determine whether an aggrieved or injured party may recover as an employee regardless of their title when hired or contracted for a job. Thus, depending on the nature of the relationship between a builder and a worker, a court may consider an independent contractor to be an employee for purposes of monetary recovery.
Under the ‘Economic Realities’ test, the following factors determine whether or not an employment relationship exists:
- The extent to which the work performed is an integral part of the employer’s business
- The worker’s opportunity for profit or loss depending on his or her managerial skill
- The extent that the relative investments of the employer and the worker
- Whether the work to be performed requires special skills and initiative
- The permanency of the relationship
- The degree of control exercised or retained by the employer
In practice, courts will look at the following variables to determine the relationship between a builder and worker:
- Did the worker use his or her own tools and equipment?
- How was the worker hired? Was it for one job only?
- Does the worker have a set schedule?
- Did the worker advertise their business?
- Did the worker hire his or her own assistants, if needed?
- Does the worker receive worker’s compensation, health, or other benefits from the builder?
- Does the worker receive pay only after the builder receives an invoice?
- What does the employment contract state, if one exists?
Understanding the distinction between employees and independent contractors helps shield your company from financial and legal liability.
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