Just because you and your workers agree—verbally or in writing—that they’re subcontractors doesn’t mean the law will agree with you. Under Pennsylvania’s Construction Workplace Misclassification Act (CWMA), many contractors may be misclassifying workers without realizing the consequences.
And a mistake here could cost you thousands.
What’s the Risk?
If you hire individuals and pay them as subcontractors—thinking this will reduce your overhead and insurance costs—you could be held liable for:
- All past employer and employee taxes
- Back pay
- Penalties
- Civil lawsuits from the misclassified worker
Even if you’ve signed a subcontractor agreement with the worker, that alone is not enough to classify someone as an independent contractor under the law.
How Will the State Find Out?
You might wonder, “How would anyone know?”
Here’s how it usually plays out:
You hire someone who works only for you. You tell them when to show up and what to do. They may use your tools or their own. They don’t have their own business website, office, or liability insurance. And you’re not paying workers’ compensation insurance or employee taxes because, technically, they’re a subcontractor… right?
Wrong.
Now imagine they get injured on your job site. With no health insurance or short-term disability, they file a claim under your workers’ comp policy. You deny it because you consider them a subcontractor. Their next call? An attorney.
What Happens If They’re Misclassified?
If the courts find they were not a legitimate subcontractor, here’s what you could be facing:
- Medical expenses
- Lost wages
- Potential pain and suffering damages in a civil suit
- Criminal prosecution
- Administrative fines up to $2,500
- Back payment of employment taxes (employee and employer portions)
Plus, if they were classified as an employee from the start, they wouldn’t even be able to sue you for pain and suffering due to the protections under workers’ comp. Misclassification strips that protection and opens you up to liability.
What You Need to Do
This is serious—and easily preventable.
- Ensure your subcontractor agreements comply with CWMA standards
- Keep thorough records of payments, job duties, and oversight
- Understand the three-part test under CWMA:
- The worker must control how the work is done
- They must operate an independent business
- The relationship must be project-specific or temporary
If you’re unsure, don’t guess—get legal guidance. Contact us now
Future Legal Trends to Watch
Non-Compete Agreements Scrutinized
Courts continue to require additional compensation (e.g., raise, bonus, or new benefits) when asking current employees to sign non-competes. Continuing employment may not be sufficient.
Mechanics Liens & Contract Compliance
Make sure you’re documenting all changes and additions to your jobs through written change orders. This is vital for enforcing mechanics liens and staying compliant under HICPA.
Compliance Corner: 3 Things to Double-Check This Month
- Are your subcontractor agreements CWMA-compliant?
- Do you have written change orders for every project modification?
- Have you recently reviewed your contracts for HICPA and arbitration clause compliance?
Upcoming Dates to Remember
April 30 – Deadline for quarterly estimated tax payments (if applicable).
Make sure your payroll systems and contracts are updated to reflect the latest regulations.
Quick Legal Reminders
- Tax & Payroll Updates: New payroll tax guidelines have been issued in Pennsylvania for the 2025 tax year. Update your system to stay compliant.
- HICPA Contracts: The state is reinforcing the importance of clear, written contracts when working with homeowners. If your contracts are outdated or incomplete, you risk lawsuits and enforcement action.
Conclusion: Protect Your Business—Before It’s Too Late
The CWMA isn’t just legal fine print—it’s a financial and legal minefield if ignored. Misclassifying workers, even unintentionally, can lead to lawsuits, fines, and financial damage that’s hard to recover from.
Now is the time to review your subcontractor agreements, tighten your documentation, and make sure your business is in full compliance. Don’t wait for an audit, injury, or lawsuit to find out you’ve been doing it wrong.
If you’re not sure where to start, give Steve Snyder a call today at (717) 975-7799 or email stevenrsnyderesq@gmail.com. One phone call could save your business thousands—and your peace of mind.