MOXIE Nimble News
THE INDEPENDENT CONTRACTOR LAW: Changes, but not for the better
over two years ago, a new Act was signed into law regulating
the use of Independent Contractors. The new law makes it tougher
for employers to use Independent Contractors. Because businesses
large and small rely on Independent Contractors, we recommend
that all employers review all existing and all contemplated
Independent Contractor relationships to avoid penalties and
fines. The Attorney General's Office has declared its intent
to aggressively enforce this new law through civil citation
or criminal prosecution for both intentional and unintentional
The New Law —M.G.L. Chapter sections 149, 148
The new Independent Contractor Law excludes far more workers from independent contractor status then before. In the past, Independent Contractors were disqualified under the traditional state and federal law tests, including the well known twenty (20) factors tests set forth by the Internal Revenue Service, The Fair Labor Standards Act and the Massachusetts Common Law. The revised Independent Contractor Law creates a presumption that a work arrangement is an employer-employee relationship unless the hiring party can meet each factor in a rigid three-part test:
Any of the three factors could be difficult to overcome but when taken together, the intent by the state to presume an employer-employee relationship is clear. In particular, factor number two leaves management with little room to contract with outside parties as part of their regular day to day business.
- The worker must be free from 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 of the same type.
An employer violates the new Independent Contractor Law when two acts occur:
- The employer misclassifies a worker as an Independent Contractor when the worker does not meet each of the criteria in the three factor test;
- In receiving services from the worker, the employer must violate one or more of the laws enumerated in the Independent Contract of Law, including the following wage and hour, taxation and worker's compensation statutes:
- Any of the wage and hour laws set forth in M.G.L. Chapter 149;
- The minimum wage law set forth in M.G.L. Chapter 151;
- The state overtime law set forth in M.G.L. Chapter 151;
- The law requiring employers to keep true and accurate employee payroll records;
- Provisions requiring employers to take and pay over withholding taxes on employee wages;
- The worker's compensation provisions punishing knowing misclassifications of an employee in addition to providing for imposition of substantial civil and criminal penalties, the law permits the Attorney General to debar from public works certain violators of the Independent Contractor Law.
The Attorney General views the misclassification of employees as a serious violation of state law: "Employers that improperly classify employees as Independent Contractors deprive these workers of proper Social Security Contributions, Worker's Compensation and insurance and other benefits, while also unfairly reducing employer's state and federal tax withholdings and related obligations. In this way, the Independent Contractor misclassification undermines the fair market competition." The revisions to the Independent Contractor law constrict employer use and give the state more teeth to enforce violations.
Now is the perfect time to go back and review all existing and all contemplated Independent Contractor relationships to be prepared for the Attorney General's aggressive enforcement of these new obligations.
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