Misclassification Damages: Massachusetts Independent Contractor Law

Misclassification Damages: Understanding the Risk Under the Massachusetts Independent Contractor Law

Businesses often opt for independent contractors over employees to cut costs. However, it's crucial to consider the potential repercussions of this decision. The most significant cost of misclassification is the damages incurred for improperly classifying employees, along with potential legal expenses.

Misclassification Damages: 1099 Employee Taxes

Unlike W2 employees, contractors are responsible for their social security tax, often referred to as self-employment tax. This means contractors bear approximately 7.5% of their gross income, with certain caps, and are at a higher risk of facing tax penalties due to the absence of regular withholdings. It's essential to anticipate that a worker who challenges their independent contractor status may seek at least 7.5% of their earnings as damages.

Misclassification Damages: Lost Benefits

Earned sick time: Massachusetts mandates that all employees earn a specific amount of sick time, with payment required for businesses employing 11 or more individuals. A contractor who successfully contests their status may be entitled to sick time pay.
Lost unemployment benefits: Independent contractors are generally ineligible for unemployment benefits. If misclassified, they might seek compensation for this lost benefit.
Employee benefits: Contractors may claim the value of benefits like health or dental insurance, paid holidays, and vacations if these are offered to W2 employees in your business.

Misclassification Damages: Wage and Hour Issues

On the surface, independent contractors are not protected by Massachusetts wage and hour laws. However, if their classification is incorrect, they can seek compensation for the wage and hour protections they should have received. This could include:

Overtime pay: If a contractor consistently works over 40 hours a week, they may claim unpaid overtime as part of their damages.
Other wage and hour claims: Employees enjoy specific protections, such as timely payment of wages and minimum wage guarantees, not extended to genuine independent contractors. Contractors may claim these amounts if they would have received higher or more punctual payments as employees.

Misclassification: Multiple Damages

Because the independent contractor law falls under the Wage Act, it is subject to the same liquidated damages provisions. In essence, the court is required to triple the damages awarded to the employee if a violation is found. The law also necessitates the employer to cover the employee's reasonable costs and attorneys' fees, even if they seem disproportionate to the damages.

Need Help With an Independent Contractor Issue?

Call (781) 784-2322

Schedule a Free Information Call

Wondering if Your Independent Contractor Status is Legal?

Our Solutions Roadmap is a quick and easy way to share the details of what you are facing and receive preliminary feedback from a member of our team. Use the button below to get started- it is 100% confidential and 100% free.

Tell Us What's On Your Mind

Protecting Your Business

The initial step is to consult a labor and employment attorney to determine the appropriateness of your independent contractor designations. While the test is stringent, Massachusetts does have genuinely independent contractors. There may also be strategies to enhance the chances of a court recognizing the independent contractor relationship.

Secondly, monitor factors that could pose issues if the contractor were considered an employee. For example, paying your contractors bi-weekly and ensuring your compensation structure meets or exceeds minimum wage can mitigate some damages.

Thirdly, seek legal advice promptly if a contractor raises concerns about misclassification. Addressing these concerns before a lawsuit is filed can protect you from triple damages.

Lastly, when deciding how to classify a worker, consider the potential damages discussed above. It's essential to compare the cost savings of utilizing independent contractors with the real financial risks posed by Massachusetts law.

How Our Employment Lawyers Can Help

At slnlaw, our experienced team of labor and employment attorneys can provide expert guidance to ensure your worker classifications align with Massachusetts law. We offer proactive solutions to minimize your legal risks, address potential concerns, and protect your business from costly misclassification damages. 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.

Schedule a Free Information Call