Does your business use “independent contractors” to augment its workforce? You may have needs that require hiring skilled workers on a short- or long-term basis. Certainly, there can be benefits to your business to hire non-employee workers. However, there are federal and state laws that regulate employers classifying workers as independent contractors, and there are penalties if you misclassify workers.
Are you in compliance with Massachusetts Independent Contractor Law (MICL)? (M.G.L. c. 149, §148B) Established in 1990, the law initially focused on the construction industry; however, as of 2004, Massachusetts is among nineteen states that have a very strict “three prong test". This expanded implications of hiring independent workers to many other types of businesses. As a result, many that have used “independent contractors” can no longer classify these workers as such anymore unless they truly meet the standards of the test.
In order to be classified an “independent contractor”, a worker must meet ALL three of the following criteria:
- the worker is free from employer’s control and direction in performing the service, both under a contract for performance of service and in fact;
- the service provided by the worker is performed either outside the employer’s usual course of business or is performed outside of all the places of business of the enterprise for which the service is performed; and
- the worker is customarily engaged in an independent trade, occupation, profession, or business of the same type.
What should businesses do?
Companies using independent contractors need to evaluate these relationships to determine if a worker is properly classified under the MICL. If it becomes clear that certain workers are misclassified under the MICL test and should be treated as employees. the employer needs to take action to rectify the situation. The three-part test should make the evaluation clear; however, if there are questions, be sure to consult an expert for guidance.
If an employer identifies an issue but does nothing, it risks significant penalties as noncompliance with the MICL is not taken lightly. The Attorney General can issue civil citations and institute criminal prosecution for both intentional and unintentional violations of the MICL. Willful violations can result in substantial fines or possible imprisonment. In some instances, fines levied may be in triple damages.
Because of this law, many businesses may stop using certain (or all) independent contractors, or decide to change the status of these workers to employees. While independent contractors are important to many businesses, the MICL and three-prong test make improper classification a greater risk that Massachusetts businesses must address.
Get more information on the Massachusetts Independent Contractor Law.