What is the law in Massachusetts?
Massachusetts General Laws, Chapter 149, Section 148B (“The Independent Contractor Law”) established a presumption that a work arrangement is considered an employer/employee relationship unless the party receiving services (your business) establishes that the following three prongs are each met:
- the individual is free from control and direction in connection with the performance of the service, both under contract and in fact; and
- the service is performed outside the usual course of the business of the employer. In enforcement actions, the Attorney General will consider whether the service is necessary to the business of the employer or merely incidental. If incidental, it is likely the person will be considered an independent contractor.
- 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.
What is a misclassification in Massachusetts?
The Independent Contractor Law provides that an employer violates the statute when two acts occur: (i) the employer classifies or treats the individual other than as an employee although the worker does not meet each of the criteria in the three prong test; and (ii) in receiving services from the individual, the employer violates one or more of the laws enumerated in the Independent Contractor Law (e.g., Massachusetts, wage and hour laws; minimum wage and overtime law; law requiring employers to keep true and accurate employee payroll records, and to furnish the records to the Massachusetts Attorney General upon request; provisions requiring employers to take and pay over withholding taxes on employee wages; and the worker’s compensation provisions.).
What is the company’s and your potential exposure:
Misclassifying employees as independent contractors may subject a business to (1) income tax liability for monies that should have been withheld from the “wages” of the “employees,” (2) employer FICA and FUTA contributions, (3) potential overtime pay and other wage claim liability, (4) state unemployment insurance payments, (5) State workers’ compensation insurance premiums (and potential liability for workplace injuries), etc. Additionally, workers may be entitled to coverage (and benefits) under existing employee benefit plans.
The Massachusetts Attorney General may impose substantial civil and criminal penalties on both businesses and individuals, including corporate officers and those with management authority over affected workers. In addition, individuals can file suit to recover treble damages, attorneys’ fees and cost.
What should you do?
- Establish a process to evaluate who is/is not an independent contractor prior to hiring.
- Have written contractor agreements and/or job descriptions that comply with the law (e.g., be sure the agreement or description clearly states the worker is free from supervisory direction or control).
- Evaluate your current workforce in light of the Independent Contractor Law.
- Discuss 1, 2 and 3 with your attorney.