By Jenifer M. Pinkham, Esquire
In a previous issue, we detailed the new Independent Contractor Law that excludes far more workers from independent contractor status and is more stringent than the previous law. At the time the article was written, the Massachusetts Department of Revenue (DOR) had issued a Technical Information Release (TIR) draft that indicated that the new narrower view of independent contractors will not be used for state wage withholding purposes. Since that time, the TIR has become final.
To reiterate, the new Independent Contractor Law creates a presumption that a work arrangement is an employer-employee relationship unless the party receiving the services (employer) can establish that three factors are present.
The worker must be free from the presumed employer's control and direction in performing the service, both under a contract and in fact.
The service provided by the worker must be outside the employer's usual course of business.
The worker must be customarily engaged in an independent trade, occupation, profession or business. The employer needs to prove all three factors in order to classify a worker as an independent contractor.
An employer violates the law when he or she classifies or treats a worker as an independent contractor although the worker does not meet each of the criteria identified in the three-factor test, and, in receiving services from the worker, the employer violates one or more of the wage and hour and/or worker's compensation statutes. As a result, if an employer misclassifies a worker but does not violate any wage/hour, worker's compensation, or unemployment compensation law, he or she has not violated the law. Accordingly, we recommend that each employer evaluate if he or she is following the employment laws in order to avoid violating the independent contract law. As the law does not apply withholding of tax on wages, an employer needs to evaluate whether or not that individual is an employee under the Federal Law, and if he or she is not then the employer may issue the employee a 1099 instead of a W-2.
The Independent Contractor Law creates broad liability for both business entities and individuals, including corporate officers, and those with management responsibility over the workers impacted. Employees may also institute private civil actions for themselves and others similarly situated for triple damages, attorneys fees and costs.
Employers need to re-evaluate their current independent contractors to determine if the worker meets the three-factor test. If you have questions or are confused, please call us for guidance.