ARE EMPLOYERS STILL PERMITTED TO CLASSIFY CERTAIN EMPLOYEES AS INDEPENDENT CONTRACTORS IN MASSACHUSETTS?
By Timothy K. Cutler
Yes, to the question set forth in the title of this article, but to a very limited extent. In July of 2004, G.L.c. 23, 1(b) went into effect severely limiting an employer's ability to classify an employee as an independent contractor. Massachusetts no longer follows the standards used by the IRS in determining whether an employee can be classified as an independent contractor. Rather, Massachusetts has instituted a far more restrictive standard as to which workers can be classified as independent contractors.
Under the laws of Massachusetts, a worker is presumed to be a W-2 employee. In order to overcome this presumption and to classify the employee as a 1099 worker, an employer must show: (1) the worker is free from the control of the employer; (2) the services provided by the worker must be outside employer's usual course of business; and (3) the worker must work routinely in an independently established trade, occupation, profession or business. Conditions one and three are found in the IRS standard, element two, however, is new and very difficult to overcome.
Performance outside the usual course of business has been interpreted broadly by the Massachusetts Attorney General to mean work that is not the same type of work that is part of the normal service delivered by employer. An example provided by the Attorney General is a pipe fitter that was hired to install steam pipes in a factory. This worker was found to be engaged in the usual course of the employer's business. Thus, according to the Attorney General, a worker that is performing any services that are the same as those provided by employer or a worker that provides services critical to the employer cannot be classified as an independent contractor.
The penalty for violating this law can result in both civil and criminal penalties, as well as being debarred from being awarded public works contracts.
Do not think that either the standards set forth by the IRS or the Massachusetts General Laws can be avoided through contractual relationships or by having the employee incorporate as entity and then hiring the entity. This is an area that an unwary employer could find himself or herself in serious trouble.