What is New York’s Construction Industry Fair Play Act?

In the State of New York, construction contractors are required to provide workers compensation insurance for any person in their employ. But because prime contractors typically subcontract work to other entities, the question of who is and who is not an employee was for many years a source of contention when an on-the-job accident occurred. In order to clarify this issue, the state amended the Labor Law and Workers Compensation Laws in 2010. The result was the Construction Industry Fair Play Act.

What Is the Fair Play Act?

The Construction Industry Fair Play Act clarifies the issue of who is and who is not an employee by establishing a presumption of employment in the construction industry. In other words, the law presumes that anyone who performs work for a contractor is an employee of that contractor. The law defines a contractor very broadly: Any sole proprietor, partnership, limited liability company, corporation or other legal entity that engages in construction work in New York State qualifies.

What this means is that any worker who is injured during the course of performing a service for a New York construction contractor is covered by that contractor’s workers compensation insurance. The only exception to this is when the person or entity performing the service fits the legal definition of an independent contractor or separate business entity. 

What Is an Independent Contractor Under NYS Law?

The Construction Industry Fair Play Act is very clear about what qualifies a person as an independent contractor. According to the law, all independent contractors in the construction industry must:

  • Be free from control and direction of the employer in performing the job, both under contract and as a matter of fact
  • Be performing services outside of the usual course of business for the company
  • Be engaged in an independently established trade, occupation or business that is similar to the service they perform

All of these criteria must be true for the standard to apply.

The Fair Play Act also outlines a 12-point test that prime contractors can use to determine if a firm is a “separate business entity” from the contractor that hired it. A separate business entity must meet all of these criteria. If it does not, it is legally an employee of the contractor.

The criteria specify that a separate business entity:

  1. Is free from direction or control over the way the service is performed. The contractor can  be involved only to the extent that it specifies the desired end result.
  2. Is not subject to cancellation after performing the work for which it was hired.
  3. Has a substantial capital investment in the business, not including tools, equipment and a personal vehicle.
  4. Owns the capital good of the business, as well as the profits and losses of the company.
  5. Makes its services available to the general public on an ongoing basis.
  6. Performs the service under the business entity’s name.
  7. Reports the income from the services under the business’ name to the IRS.
  8. Furnishes all tools and equipment necessary to complete the job.
  9. Hires its own employees without input from the contractor. The business entity must also pay its own employees and report their earnings to the IRS.
  10. Obtains all necessary licenses and permits under the business entity’s name.
  11. Has the right to perform the same or similar services to others whenever and however it chooses.
  12. Is not represented as an employee by the contractor, either to the general public or to its employees.

Any business that meets all of the above criteria is a separate business entity under New York State law and is responsible for obtaining its own workers compensation insurance for its employees.

Penalties for Noncompliance

In addition to codifying the rights of construction employees under New York State law, the Fair Play Act established new, stiffer penalties for contractors who misclassify employees. These include:

  • Up to $2,500 for each misclassified employee for the initial violation
  • Up to $5,000 per employee for a second violation within a five-year period
  • Criminal prosecution with a penalty of up to 30 days in jail and a maximum $25,000 fine for a first offence
  • Being barred from bidding on public works projects for up to a year (first offense)
  • Up to 60 days in jail, a $50,000 fine and debarment from participating in public works projects for up to five years for each subsequent offense.

Additionally, if the contractor is a corporation, officers and shareholders who own at least 10 percent of the company stock may be subject to the same penalties if they knowingly allowed the violations to occur.

Obviously, if you’re a construction contractor in the State of New York, it’s very much to your benefit to comply with the state’s Construction Fair Play Act. If you’re confused about the law, visit the website of the New York State Department of Labor to learn more.

About the Carmoon Group

The Carmoon Group, Ltd. is an independent insurance broker located in Hicksville, New York. Through our large network of nationwide affiliates, we provide comprehensive business insurance to companies all across the United States. Our professional agents have the knowledge and expertise to help with all of your insurance and risk management needs. So, why not give us a call now to schedule an appointment for your insurance review? Or if you prefer, simply reach out online and we will get back to you at a convenient time.

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