2011 March 3 by Andrew Savard
Recent developments in MA law have made it virtually impossible to be a true independent contractor in Massachusetts. Many Massachusetts businesses unknowingly misclassify their employees as independent contractors.
According to M.G.L. c. 149 Section 148B, a person is considered an employee unless all of the following are true:
a. the individual is free from control or direction in the performance of his or her duties
b. The service being performed by the individual is performed outside the usual course of business for the employer
c. 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
These are factors and are weighed by a fact finder on a case by case basis. This means that should the classification of your workers ever be challenged, such a decision would be left to a judge after his or her careful review of the facts.
The misclassification of employees as independent contractors can carry severe civil and even criminal penalties. A willful misclassification is punishable by a fine of up to $25,000 or one year in prison. Even if you mistakenly misclassify an employee as an independent contractor, you can be subject to a fine of up to $10,000 and 6 months in prison. In addition to these statutory penalties, you can also be responsible for violating other state and federal statutes that have to do with minimum wage, overtime, income tax withholding, worker’s compensation insurance, employee record keeping, etc. In fact, failure to pay federal tax withholdings could lead to an audit by the IRS.
As you can see, it is often better to classify someone as an employee and pay the upfront costs than to be caught misclassifying employees further down the road. Many Massachusetts businesses have decided to convert their existing independent contractors to employees. However, this process can be a complicated process especially where a company’s workers have gotten used to a certain way of being compensated.
Please stay tuned for our next edition which will continue to educate business owners on the Massachusetts Independent Contractor Laws and some strategies to keep you out of trouble.