Independent Contractors – MA Toughens Guidelines

  As the economic climate begins to improve, some firms are hiring independent contractors to help manage business fluctuations.  This can be risky, as Massachusetts has recently adopted very strict guidelines for determining whether a worker is an independent contractor or an employee. 

 The Massachusetts Independent Contractor Law disqualifies many more workers from classification as an independent contractor than the federal guidelines set forth by the IRS (“20 Factors Test”) or Fair Labor Standards Act.  Additionally, these changes make incorrectly classifying an employee as an independent contractor a costly mistake in Massachusetts, with the potential for significant tax liabilities and possible criminal sanctions. 

Employee or Independent Contractor?

The new guidelines establish three clear factors when considering whether an individual should be classified as an employee or as an independent contractor.  It is not enough that one of these factors be present:  for an individual to be properly classified as an independent contractor, all three factors must apply.

First, the employer must not direct or control the manner in which the individual performs the work.  An employment contract alone, stating that the individual will be free from direction or control, is not sufficient.  In addition to the contract, on a daily basis the individual must be able to act freely and with autonomy in performing his/her activities.  An independent contractor chooses his/her own method of completing an assignment and the hours that he/she will work to complete it. 

Second, the service performed by the individual must be outside the employer’s normal scope of business.  For example, if an engineering firm hires someone to conduct engineering studies, the individual cannot be classified as an independent contractor because he/she is providing services that are consistent with the firm’s primary focus.  However, if this firm hires an individual to perform an accounting or HR function, the individual could potentially be an independent contractor.

The third factor pertains to whether the individual normally works in an “independently established trade, occupation, profession or business.” M.G.L.c.149, § 148B (a)(3).  To be properly classified as an independent contractor, an individual must provide services to the employer that are consistent with his/her established profession and must offer his/her services to the general business community (for example, advertising or maintaining a business office).   

If, after carefully examining these three factors, an employer is convinced that an individual is an independent contractor, then it is incumbent upon the employer to be certain that the independent contractor carries liability insurance, workers’ compensation insurance, etc.  Failure to do so could expose an employer to additional liabilities.

Partnering with a contract employment agency eliminates the significant risks of improperly classifying an individual as an independent contractor.  Contractors provided by an agency are employees of the agency; therefore, a firm has no potential tax liability resulting from mistaken classification of a worker.  An agency can also act as employer-of-record if a firm has already identified a contractor with whom it chooses to work. 

Triad Engineering Corp has specialized for over 35 years in helping clients fill their technical staffing needs on a contract and contract-to-direct basis.  Triad is locally owned and operated and offers the most personalized service and experienced staff available.  Please contact us at 800-649-1514 or visit our web site www.triad-eng.com for more information.

Employers are encouraged to refer to the source for this article, M.G.L.c.149, § 148B, for more information and guidance concerning the classification of independent contractors.