The importance of correctly classifying your company’s workers

On Behalf of | Sep 24, 2020 | Employment Law -- Employer |

As the gig economy keeps growing, employers in Pennsylvania need to remain aware of the what requirements they must adhere to when classifying workers as employees or independent contractors. You must correctly categorize all workers or face stiff fines.

What the ABC test does

The default status of workers under employment law is that they are employees unless they meet certain criteria established under the ABC test. The criteria are:

  • The worker is not under the control of your company’s hiring entity
  • The worker performs work outside of what your business normally does
  • The worker is normally always engaged in the work being performed

The middle requirement, involving customary engagement, is a recent addition to the ABC test and include occupations such as ride-hailing service drivers, maintenance people, tech and IT personnel and the like. Correctly classifying workers is important because it involves Social Security payments and worker’s compensation rights.

What Pennsylvania requires

Pennsylvania employment law formerly used the three-pronged ABC test but now only considers the A and C prongs. Employers must only prove that their workers are free from their direct control and that the worker is engaged primarily in an independently established trade, business or profession. Additionally, Pennsylvania recognizes industry exceptions that include non-salaried newspaper correspondents, commission-based insurance agents and solicitors, commission-based real estate brokers, newspaper carriers under the age of 18 and employees of an international organization or foreign government.

Are your workers classified correctly?

Correctly classifying your workers according to employment law reduces your overall risk of violating wage and hour laws. It also affects your accounting practices as you need to correctly issue each worker a W-2 for wages or a 1099 for compensation paid. Business owners unsure of the status of certain workers may want to review ABC test requirements with a legal professional.