Differentiating Between an Employee and an Independent Contractor

Proper classification of workers, and subsequently paying applicable unemployment insurance, is at the forefront of maintaining the Unemployment Insurance Trust Fund.

Unemployment Insurance was implemented to stabilize the economy by providing temporary income assistance to eligible workers that have lost their jobs through no fault of their own.  Appropriate contributions by employers is vital to the success of the program.  Additionally, misclassified workers do not receive other rights and benefits they are entitled to as employees.

Before classifying your employees or issuing a Form 1099-MISC, the MADUA strongly suggests that businesses review the relevant statute below for guidance:

The statute governing Unemployment Insurance, Massachusetts General Law (MGL) c.. 151A, § 2, sets forth the requirements for an individual to be recognized as a legitimate Independent Contractor in Massachusetts for purposes of unemployment insurance. The text of the statute is as follows:

Service(s) performed by an individual shall be deemed to be employment, unless and until it is shown that:

(a) such individual has been and will continue to be free from control and direction in connection with the performance of such services, both under his contract for the performance of service and in fact; AND 
(b) such service is performed either outside the usual course of the business for which the service is performed[1] or is performed outside of all the places of business of the enterprise for which the service is performed; AND
(c) such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

All 3 prongs of this ‘A-B-C Test’ must be met for proper classification of an Independent Contractor, regardless of any agreement between the parties. If the test is not met, the worker must go on payroll with wages reported to the appropriate agencies. Each worker must be analyzed independently, as the facts and circumstances may change from individual to individual.

Additional information is available online at:

https://www.mass.gov/unemployment-insurance-ui-online and

https://www.mass.gov/service-details/independent-contractors

Businesses that have questions can contact the Massachusetts Department of Unemployment Assistance at (617) 626-5050 or the Attorney General’s Fair Labor Division at 617-727-3465.

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[1] Note that MGL c. 149, § 148B, the Massachusetts wage law, has a slightly different (b) prong, in that it omits the alternative test, and only focuses on whether the service performed is outside of the usual course of business.

Source:  MA Department of Unemployment Assistance