Pennsylvania: Standard for Classifying Independent Contractors Further Clarified

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April 22, 2020

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Generally speaking, Pennsylvania employers are required to pay unemployment taxes on compensation paid to individuals who provide services to the employer.  In A Special Touch v. UC Tax Services, the Pennsylvania Supreme Court provided further clarification on how the state Unemployment Compensation Law will determine if an individual is an independent contractor and thereby exempt from the business’s unemployment tax obligations.

Under the Unemployment Compensation Law, a business must show that (a) it does not control or direct the how the worker provides contracted services, and (b) that the worker “is customarily engaged in an independently established trade, occupation, profession, or business.”  In A Special Touch, the Court clarified the second prong of this independent contractor test to mean that the individual is actually engaged in a business, not just having the ability to engage in a business.

There, a salon had engaged a number of nail technicians and additional staff who were identified as provided cleaning, maintenance, and babysitting services, all classified as independent contractors.  However, only one nail tech worked with another salon for a brief period at the start of her engagement with A Special Touch.  The staff members engaged for cleaning, maintenance, and babysitting services performed work outside the salon, but did not actually perform any of those specific services.

The Court further clarified that even if the individual is not currently engaged or providing services to other parties at the moment, the worker must still demonstrate that they hold themselves to be self-employed and available to perform services for other parties, such as by advertising their services or providing business cards. Under the circumstances, none of the workers met the definition of independent contractor, and the salon was found to owe unemployment taxes on their compensation.

Action Items

  1. Review independent contractor status with legal counsel for compliance with the clarified independent contractor test.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2020 ManagEase

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