Is My New Hire an Independent Contractor?

In Massachusetts, most workers are considered employees; indeed, there is a presumption that a worker is an employee. As employees, they have rights to minimum wage, overtime, and other protections under the law. However, some workers are classified as “independent contractors” and are not entitled to all of the statutory protections and requirements applicable to employees. To determine whether your new hire is an independent contractor, you will need to evaluate the three prongs of the Massachusetts independent contractor test.

The Three-Part Test for Independent Contractors

Under Mass. General Laws Chapter 149 Section 148B, commonly referred to as the Independent Contractor Law, all individuals performing any service are considered employees unless the services they are performing meet all of the following three prongs of the independent contractor test:

(1) They perform their work without the direction or control of the employer;

(2) The services they perform are outside the usual course of the employer’s business; and

(3) They are “customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.”

The law requires all three prongs of the test to be met for an individual to be classified as an independent contractor; an individual who satisfies only one or two of these prongs is still an employee.[1] No one factor is dispositive of the analysis. Even your new hire’s job title won’t dictate the result.

Prong #1: Freedom From Control

For an individual to satisfy the first prong of the independent contractor test, they must be free from the control or direction of the employer in connection with the performance of the service both under their contract for the performance of the service and in fact. In other words, if your new hire’s contract affords them freedom from control but, in practice, their work is subject to the direction or control of the employer, the individual will be considered an employee.

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Prong #2: Services Outside the Usual Course of the Employer’s Business

The usual course of the employer’s business includes services that the employer holds itself out as performing or defines its activities to include. In other words, if your new hire is going to perform services that your company already performs as part of its core business, your new hire is likely to be an employee.

The Attorney General’s Office has provided further clarification that in its enforcement actions, it looks at whether the service performed is necessary to the employer’s business, or incidental to the employer’s business. Generally, individuals performing necessary services are considered employees while individuals performing incidental services are likely to satisfy this prong of the independent contractor test. For example, if a house painting company classifies an individual who paints houses as an independent contractor, that would likely be a violation of prong two because that individual is performing an essential part of the employer’s business. Conversely, if a law firm hired an individual to paint its offices, that individual would satisfy prong two because painting is merely incidental (and not essential) to the law firm’s business.

Prong #3: Individual is Engaged in a Business of the Same Nature

Your new hire is likely to satisfy this prong of the test if the services they are being hired to perform are not necessarily limited to a single employer, meaning your new hire is capable of performing these services for anyone wishing to hire them. If the nature of the services your new hire is performing requires them to depend on a single employer, they are less likely to be viewed as an independent contractor. You’ll want to think about whether your new hire is (metaphorically) wearing the hat of an employee of your company or wearing the hat of his or her own independent enterprise. See Comm’r of the Div. of Unemployment Assistance v. Town Taxi of Cape Cod, Inc., 68 Mass. App. Ct. 426, 431 (2007). If your new hire will only be working for you, they may still satisfy this prong as long as they would be free to seek out work from additional employers if they chose to do so. If your contract with your new hire required exclusivity, it’s less likely they would be viewed as an independent contractor.

Consequences of Misclassifying an Employee

Misclassifying an employee as an independent contractor — even inadvertently — can have serious consequences for both companies and their officers. Employers violate the Independent Contractor Law when they (a) misclassify an employee as an independent contractor and (b) in connection with misclassifying the employee, fail to comply with the various laws applicable to employees such as wage and hour laws, the overtime law, the law requiring employers to keep employee payroll records, and laws related to income tax withholding of employee’s wages. If an employer violates the Independent Contractor Law, the entity — as well as its president, treasurer, and those with management authority over misclassified workers — are subject to liability.

The Independent Contractor Law gives the Attorney General’s Office the authority to issue both civil and criminal penalties for the misclassification of employees. In severe circumstances, such as repeat violations by the same employer, the AG’s office can debar violators from public works contracts. In addition, misclassified employees can bring a lawsuit for lost wages or benefits as a result of the misclassification; if successful, they may recover treble damages and attorneys’ fees.

[1] Similar, but different, definitions of “employee” are used for purposes of Massachusetts income tax withholding under Mass. Gen. Laws c. 62B; for purposes of unemployment insurance under Mass. Gen. Laws c. 151A §2; and for purposes of the Massachusetts Workers’ Compensation Law, Mass. Gen. Laws §1(4).

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Jennifer A. Henricks