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Independent Contractor or Employee

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Independent Contractor or Employee

In 2004 Massachusetts narrowed the circumstances under which employers can define workers as independent contractors rather than employees.

Before the change, Massachusetts employers could look to the IRS's "20 Factors" test and other labor and common law, which allowed for a relatively permissive balancing test. The factors included: the amount of autonomy a worker enjoyed in terms of hours; work place and work methods; the amount of employer training provided; whether the worker invested in and used his/her own tools; whether the worker performed similar services for other clients; the existence and terms of a contract; risk allocation; and length of the relationship. The absence of one or several of the factors weighing in favor of independent contractor status could be compensated for by the presence of others.

Current law, on the other hand, requires that all workers be classified as employees unless three non-negotiable criteria are met. These include the following:

  1. the worker must be free from the employer's control and direction in connection with the performance of the services, both according to the contract and in fact;
  2. the services performed must be outside the usual course of the business of the employer; and
  3. the worker must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the services performed.

This standard is much less flexible than the previous one, and draws a larger number of people into the employee category. Note that this standard does not include an exception for people who perform services for a short or limited period of time.

Misclassifications, whether intentional or not, that result in failure to comply with certain other employment laws (such as withholding tax and workers compensation coverage requirements), can carry heavy civil penalties (as well as prison time and/or criminal fines in rare instances). Actions for violations may be brought by both the Attorney General and by the misclassified individuals themselves. Employers should take care that their Massachusetts-based contractors are also properly classified, and should consult an attorney if they are uncertain.

Refer to the Massachusetts' Attorney General's Advisory for more information.

Additional Resources

For more information regarding employee vs. contractor status, refer to the following resources:

  1. IRS Small Business & Self-Employed Website: Independent Contractor vs. Employee
  2. Joint Committee on Taxation: Present Law and Background Relating to Worker Classification for Federal Tax Purposes
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