Hiring an Independent Contractor in Massachusetts

Independent Contractors in Massachusetts - A Guide for Small Business Owners

As a small business owner, payroll costs can often feel overwhelming. Unemployment taxes, employment taxes, and workers' compensation insurance can make hiring employees a daunting prospect. That's why many business owners in Massachusetts consider hiring workers as independent contractors instead of traditional employees.
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However, it's crucial to understand that classifying workers as independent contractors isn't as simple as it might seem. True independent contractor status in Massachusetts is subject to strict legal limitations. In reality, many individuals categorized as independent contractors should legally be classified as employees. Failing to get this classification right can expose your business to significant legal risks and potential lawsuits. This page explores the essential rules and best practices for hiring independent contractors in Massachusetts.

Employee or Independent Contractor: The Rules

In Massachusetts, the general rule is that most workers should be considered employees rather than independent contractors. To be classified as an independent contractor legally, three criteria must be met:

1. The worker must have freedom from control and direction in their work.
2. The worker must offer the same services to other businesses.
3. The work performed by the worker should not be part of your core business activities.

If you exercise significant control over how the worker performs their duties, require exclusivity, or if their work aligns with your core business functions, they may be misclassified as independent contractors. Misclassification could lead to legal consequences under the Independent Contractor Law.

Understanding the Risks

​If a worker challenges their independent contractor status and succeeds, your business may face a lawsuit. In such cases, the court could be required to award three times the actual damages, along with reimbursement for the worker's costs and reasonable attorney's fees. Potential damages could include:

• Employment taxes the contractor had to pay.
• The value of benefits offered to W-2 employees in your business.
• Overtime pay, if applicable.
• Damages if the worker cannot collect unemployment benefits due to their independent contractor status.

The costs of misclassification can be substantial and should not be underestimated when deciding between hiring employees and independent contractors.

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Hiring an Independent Contractor: Are You Really Saving Money?

While the additional costs of hiring employees are real, it's essential to calculate the potential costs of misclassification. These costs include your share of employment taxes, unemployment tax contributions, workers' compensation insurance, and administrative payroll processing fees.

The risk of a worker successfully challenging their independent contractor status can lead to significant legal expenses and damages. You must also remember to multiply that risk times three, because a successful challenge to independent contractor classification will result in triple damages under the Wage Act.

Hiring an Independent Contractor: Best Practices

To minimize your risk when hiring independent contractors, consider implementing the following best practices:

1. Use a Written Contract: A written contract can clarify important aspects of the independent contractor relationship, such as the worker's discretion in performing their job and their ability to provide services to others.
   
2. Ensure Adequate Compensation: Pay your independent contractors an amount that at least meets the statutory minimum wage, even if they are not subject to minimum wage laws. This can protect you from minimum wage law liability in case of a challenge.
   
3. Implement Invoicing and Reporting Systems: Require independent contractors to submit invoices and report on their work progress. This helps establish their independence and provides documentation for business purposes.
   
4. Address Concerns Promptly: If an independent contractor raises questions or concerns about their classification, seek legal advice immediately to prevent potential retaliation claims.
   

By following these best practices and seeking legal guidance when needed, you can navigate the complexities of hiring independent contractors in Massachusetts while minimizing legal risks.

Conclusion

While hiring independent contractors can seem like a cost-effective solution for small businesses, it's crucial to comply with Massachusetts law and avoid misclassification. The potential legal consequences of misclassifying workers can far outweigh the initial cost savings. Understanding the rules and best practices for hiring independent contractors is essential for the long-term success and legal compliance of your business.

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We have helped many small business owners assess their employment practices and their risk.  We can help you structure your hiring in a way that minimizes risk, and respond in the event of a problem.  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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