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Independent Contractor Test: Massachusetts vs. IRS

Your accountant may have told you that you could classify certain employees as independent contractors. Your accountant may be right in terms of tax treatment. But you should understand that the IRS test is not the same as Massachusetts law.

The differences between the two tests causes a lot of confusion for business owners in Massachusetts. What you need to remember is that even if the IRS accepts the independent contractor status, you may still have a problem under Massachusetts law.

Definition of Contractor: The IRS Version

The IRS historically used a "20 factor test" to answer this question. This test has now been compressed into three general categories. These are behavioral control, financial control, and evidence of the nature of the relationship between the contractor and the business.

The "behavioral control" factor is not that different from the Massachusetts test. The IRS will look at the extent to which the employer is directing and supervising the work of the contractor. The more the contractor is free from control, the more likely their classification will be valid.

"Financial control" looks at who bears the cost of expenses and how the worker is paid. Like Massachusetts law, the contractor's freedom to provide services to others is an important consideration.

The IRS will look broadly at the relationship between the parties. This includes how they define their relationship in the independent contractor agreement. They will also ask whether the service performed by the contractor is central to the usual course of business of the employer.

Definition of Contractor: How the IRS definition is Different from Massachusetts

​Though the IRS is looking at many of the same things, Massachusetts law is different in a few key respects.

First, the IRS test allows a balancing of several factors. It is possible that the IRS would consider the relationship overall to be that of a contractor, even if the contractor is providing services central to the employer's business. Similarly, a contractor who works exclusively for one company may still pass the "financial control" test if other facts are present.

In contrast, the Massachusetts Independent Contractor law is more specific. If the work you do is part of the employer's usual course of business, you do not meet the business prong of the test. If you are not customarily engaged in an independently established trade, occupation or profession, you do not meet the third prong of the test.

Second, the IRS test does not require that all three tests are satisfied. In contrast, in Massachusetts you must meet all three parts of the three part test.

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Misclassification If You Meet the IRS Test But Not the Massachusetts Test

If the IRS is satisfied, you will not be responsible for tax liabilities associated with employees. You will continue to issue these workers 1099 forms, and will not need to withhold federal taxes from their checks.

If you do not meet the Massachusetts three part test, your concern is less about taxes and more about employment law. The individuals classified as contractors could seek damages in a civil suit. These damages could include the self-employment taxes the contractor has to pay. They could also include the value benefits available to employees but not contractors in your business.

Less common but still possible is an investigation by the Massachusetts Attorney General. A contractor who questions his or her status can file a complaint with the Attorney General. The Attorney General in turn has the legal authority to investigate the claim. The Attorney General may assess fines or penalties in addition to damages payable to the contractor.

What if Independent Contractor Status is the Norm in Your Industry?

There are certain industries where the use of independent contractors is widespread, even though it probably is employee misclassification. Companies involved in publishing and design services often use freelancers, for example. Consulting companies, especially in the IT consulting space, often use independent contractors. In many of these cases the entire business model is built around this kind of labor.

This, plus assurances from your accountant, may cause you to believe your independent contractor status is valid.

For all of the reasons above, this may not be true. You should consult with an employment lawyer to determine whether your workers should be paid as employees instead of contractors.

How We Can Help

Definition of Contractor MA law
10.0Emily E. Smith-Lee
Misclassification MA employment lawyer
We have helped many individuals and business owners understand the Massachusetts independent contractor law.  We would love to help you get clarity on your rights and obligations, and take the steps you need to take to protect your rights.  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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  • Home
  • Employment Law
    • Guide To Employment Law Content
    • Employment Contracts in Massachusetts
    • Discrimination in the Workplace
    • Employment Termination >
      • Massachusetts Paid Family Leave
      • Severance Pay
      • Unemployment in Massachusetts
    • Sexual Harassment at Work >
      • Sexual Harassment in a Small Business
      • Sexual Harassment and Non Disclosure Agreements
      • Sexual Harassment and Remote Work
    • Wage and Hour Laws
    • Independent Contractor Law
    • Non Compete Agreements >
      • Are non competes enforceable
      • Massachusetts Non Compete Act
      • Pre 2018 Massachusetts Non Competes
  • Estate Planning
    • Guide To Estate Planning Content
    • Legacy Protection
    • Why You Need an Estate Plan
    • Why You Don't Have an Estate Plan
    • Estate Planning Documents >
      • Children with Special Needs
    • Planning for Assisted Living
    • Probate Process
  • Business Law
    • Guide To Business Law Content
    • Small Business Law
    • Business Contract Basics
    • Civil Suit Defense
    • Legal Issues for Start Ups
    • Trademark Basics
    • How to Incorporate
    • Sale of Business
  • About
    • Reviews
    • Slnlaw Offices
    • slnlaw core values
    • Publications and Interviews
    • New Client Intake and Consultation
    • Contact
  • Attorneys
    • Emily Smith-Lee >
      • 2018 Lawyer of the Year
    • Jenna Ordway
    • Rebecca Rogers
    • Andrew Silvia
    • Elijah Bresley
  • Legal FAQs
    • Estate Planning FAQs
    • Probate FAQs
    • Small Business FAQs
    • Wage Act FAQs
    • Commission Pay FAQs
    • Overtime FAQs
    • Independent Contractor FAQs
    • Non Compete FAQs
    • Employment Discrimination FAQs
    • Employment Termination FAQs
    • Massachusettts Unemployment FAQs
    • Severance Package FAQs
    • Medical Leave FAQs
    • Sexual Harassment FAQs
    • Employer FAQs
    • Civil Lawsuit FAQs
  • Blog