5 Myths About Independent Contractors in Massachusetts

If you are providing services as an independent contractor, or if you have people providing services to your business as independent contractors, it is important that you know the rules in Massachusetts. with very few exceptions, the three part test to establish a lawful independent contractor relationship applies to all businesses in Massachusetts.  If you do not meet all three elements of the test, it is probable that the person providing the services should be paid as a W2 employee.

Below are five common myths about the independent contractor law in Massachusetts:

Being Paid as an Independent Contractor Means You Take Home More Money

Yes, the checks you receive will have more money in them because there are no taxes withheld.  But you will still owe those taxes in the following year.  What you may not know is that you will actually pay higher taxes in the end, because the employer is not contributing to your FICA tax.  You can expect to owe 7.5% more in taxes than you would if you were a W2 employee.  The bottom line: it is not to your advantage from a tax perspective to be classified as an independent contractor.

Work During a Probationary Period Can Be Done as a 1099 Employee

This is a common but legally risky practice.  There is nothing wrong with putting new employees on probationary status when they start a new job.  This gives the company and the employee a chance to get to know each other, and may involve more frequent supervision and reviews.  It does not, however, change the underlying nature of the relationship.  If the services performed would be considered employment in a long term relationship, then it is an employment relationship from the very beginning.

You Are an Independent Contractor if you Have an LLC

The three part test is the same whether you are working as an individual or under the name of a company or agency you have formed.  If you are not free from control and supervision, providing a service that is outside of the core business of your employer, AND regularly providing the same services to others, you should be paid as an employee.  There may be other reasons you want to form a corporate entity, like protecting your personal assets from liability.  But you should know (and your employer should know) that it does not change the nature of the employment relationship.

An Independent Contractor Agreement Makes it Legal

This is another common misconception.  Many employers believe that if the employee signed an agreement to be classified as a contractor, the classification is legal.  The truth is that even if it is the employee who requested to be a 1099, you still must meet the three part test under Massachusetts law. 

What many people don't realize is that the Independent Contractor Law is part of the Massachusetts Wage Act.  Why that matters in this case is that the Wage Act specifically states that employers and employees cannot have an agreement or "special contract" that excuses the employer from its legal obligations under the Act.

Everyone in My Industry Hires 1099 Contractors So it Must Be OK

The reality is that many employers get this wrong, but that doesn't mean the practice of using freelancers, gig workers, or anyone else treated as an independent contractor is legal.  You must always go back to the three part test.  If you don't meet all three elements of the test, it is not a lawful independent contractor relationship. 

This creates a challenge for the business owner.  If your competitors are all saving money by using independent contractors, you may feel like you are at a disadvantage by putting people on payroll.  Remember, though, that if an independent contractor brings a lawsuit claiming they should have been treated as an employee, you could wind up owing them three times their actual damages, and paying for their attorneys' fees as well as your own.  This means that "competitive advantage" is completely wiped out by even one employee claim.

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If you are working as an independent contractor, you are missing out on important benefits and protections.  This can include paid sick time, overtime compensation, protection for workplace injuries, and unemployment.

If you are a business owner, you need to understand cost of getting this wrong.  You could be liable for three times your contractor's actual damages and payment of their attorneys' fees as well as your own.

We can help you navigate these issues and get clarity on your rights and obligations as an employer or an employee.  You can use the button below to schedule a call back from a member of our team, or give us a call at  781-784-2322.

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