Subcontractors are an essential element on virtually all commercial construction projects, but their value isn’t defined exclusively by the specialized jobs they perform. Contractors employ the help of subcontractors to contribute work that would be too challenging or expensive to perform with dedicated, full-time workers on staff. They also utilize subcontractors to help “defray liability and employee-associated taxes and expenses,” as Trent Cotney, CEO of Cotney Construction Law, LLP, noted in an article posted by the Tennessee Association of Roofing Contractors (TARC).
In this article, a construction lawyer in Clarksville, TN, from Cotney Construction Law will discuss why it’s important to establish a clear line of demarcation between your employees and the independent subcontractors you contract with.
The Replacement for the “Suffer or Permit” and “Control” Concepts
When the United States Department of Labor Wage and Hour Division terminated the existing laws used to determine whether or not a subcontractor was acting as an independent contractor, it meant ending two open-ended standards known as the “suffer or permit” and “control” concepts.
The former established liability on behalf of the employer if a worker performed work illegally in a way deemed to be detectable. The latter required a court to judge the employer’s level of control over a worker. Under this concept, a worker is considered an employee if the employer could exemplify direct control over the worker.
Now, a standard referred to as the “economic realities test” is being used in lieu of these other two concepts. This standard is the byproduct of a multilateral effort between various federal agencies, including:
- The Occupational Safety and Health Administration (OSHA)
- Environmental Protection Agency (EPA)
- Social Security Administration (SSA)
- Immigration and Customs Enforcement (ICE)
This test can be utilized to determine if a company has misclassified their workers as independent subcontractors. If this is found to be the case, they can reclassify a contractor as an employee, resulting in potential fines, citations, and/or legal action.
Contractors: Here’s What to Do
First and foremost, you can have a construction attorney in Clarksville, TN, review your contracts to ensure that you have all the required contractual language to show that independent subcontractors are not employees. This includes establishing policies that help reinforce the fact that hired subcontractors are in business for their own benefit as independent contractors. It’s important to act quickly to ensure that your contracts protect your best interests before you are faced with enforcement action for worker misclassification.
It’s important to understand that simply labeling an employee as an independent subcontractor will not be enough to verify their classification in the eyes of the law. Here’s what the economic realities test looks at when classifying workers:
- Was the extent of the work that was performed considered integral to the employer’s business?
- Did the worker’s managerial skills affect profits?
- Did the employer and worker contribute relative investments?
- Did the job performed require the use of specials skills?
- What is the level of permanency associated with the professional relationship?
- How much control over the worker does the employer possess?
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.