There are a number of benefits for employers hiring independent contractors instead of employees. Independent contractors can take care of specific projects, seasonal work, and offer more flexibility for business needs. However, a number of states, including Massachusetts, have made it more difficult to use independent contractors who don't fit the strict definitions under state law. Employers will have to be careful about classifying workers to avoid costly penalties or lawsuits down the road.
If you have questions about hiring practices, employee contracts, and classifying workers for your Massachusetts company, contact the Katz Law Group today.
Independent Contractors in Massachusetts
Massachusetts has strict requirements for what qualifies as an independent contractor. Under.G.L.c. 149, sec.148B, an individual doing work shall be considered an employee unless:
- The individual is free from control and direction in connection with the performance of the service;
- The service is performed outside the usual course of the business of the employer; and
- The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Calling the worker an independent contractor, failing to withhold payroll taxes, or failing to provide workers' comp insurance are not considered in making a determination as to whether a worker is considered an employee or independent contractor.
Consequences of Misclassifying Workers in Massachusetts
Employers who misclassify “employees” as independent contractors can face criminal enforcement or civil penalties. Workers who are misclassified may also be able to file a wage complaint with the Attorney General's Fair Labor Division. A wage and hour lawsuit could subject the employer to back pay, overtime pay, damages, and attorney's fees.
Enforcing Employee/Independent Contractor Classification
According to the Massachusetts Attorney General, the need for enforcement of proper classification includes making sure misclassified workers are not left without unemployment insurance, workers' comp benefits, or employer-provided health care. Proper classification also provides the Commonwealth payroll tax revenue. Misclassification effectively subsidizes businesses that use independent contractors instead of employees.
The other States Following Massachusetts
California has recently passed a similar law as Massachusetts regarding the classification of workers and independent contractors after a California Supreme Court decision adopted a similar ABC, three-prong test. Some states are considering similar measures but other states are going the opposite direction and are exempting so-called “gig” companies from state labor laws and payroll tax requirements.
For now, employers in Massachusetts should make sure the work they intend for independent contractors meets the three-part test. Employers may be able to adjust their work requirements needs to make sure the jobs qualify for independent contractors. Misclassification can subject employers to wage and hour violation lawsuits, civil penalties, and even criminal enforcement.
Massachusetts Business Law Attorney
The Katz Law Group has more than 36 years of experience representing businesses across Massachusetts and New England. This includes negotiating commercial contracts, business litigation, and handling employment contract disputes. If you have any questions about contracts, business formation, and business litigation for your company, contact the Katz Law Group today.