Worker classification in the construction industry is more than just a business decision—it’s a legal requirement!

Worker classification is a crucial issue that affects wages, benefits, and legal protections. To ensure fair treatment and prevent misclassification, New York State enacted the Construction Industry Fair Play Act. This law, which applies to construction workers and contractors, clearly defines the difference between employees and independent contractors—and the consequences of getting it wrong.

Why Was the Fair Play Act Created?
Misclassification of workers as independent contractors has been a long-standing problem in the construction industry. When workers are incorrectly labeled as contractors rather than employees, they may be denied important benefits such as:

• Overtime pay
• Unemployment insurance
• Workers’ compensation coverage
• Social Security and tax contributions

To address these issues, the Fair Play Act establishes a clear three-part test to determine whether a worker is truly an independent contractor.

How to Classify a Worker Under the Law

Under the Construction Industry Fair Play Act, a worker is automatically considered an employee, unless they meet all three of the following criteria:

1. Be free from direct control
2. Perform work outside the company’s usual business scope
3. Operate their own independent trade or business

If any of these conditions are not met, the worker must be classified as an employee, not an independent contractor. While this law applies specifically to New York construction employers and contractors, it’s important to note that the federal government has its own classification standards—and businesses must comply with both state and federal regulations to avoid legal risk.

Penalties for Misclassification
The penalties for misclassification are steep — fines start at $2,500 per worker for a first offense and increase for repeat violations up to $5,000 per worker. Employers are also liable for unpaid wages, benefits, and taxes as well as face potential criminal charges for intentional misclassification and may also be held accountable for violations committed by their subcontractors.

How Employers Can Stay Compliant
To stay compliant and avoid penalties businesses should: 

• Review all independent contractor agreements to ensure they meet the three-part test
• If in doubt, classify workers as employees to avoid legal risks
• Train HR and management teams on proper classification guidelines

When in doubt, it’s safest to classify workers as employees.
Construction industry employers are also REQUIRED to post a notice about the Fair Play Act, which outlines worker classification rules. You can access the required notice here.

Stay Compliant and Protect Your Business
The Construction Industry Fair Play Act helps safeguard workers and promote fair business practices. By staying compliant, employers can avoid costly fines and legal risks while ensuring their workforce receives the wages and benefits they deserve.

Want to ensure compliance? Contact Topaz for expert guidance!