Condo Media - April 2011 - 30

LEGAL

by Merle R. Hass, Esq.

Employee or Independent Contractor
Which Should You Hire?
hen condominium associations and managers hire seasonal workers, in addition to the usual concerns about reliability and competence, employers need to keep in mind another critical factor: whether the person hired is an independent contractor or an employee. This is not simply a question of choosing the correct label. Rather, the characterization of a worker as an employee or an independent contractor has many ramifications. There are serious consequences for misclassification, including stiff penalties for violation of the Massachusetts Wage Statute, workers’ compensation implications and the risk of vicarious tort liability. Professional legal advice on the question of how to classify and pay workers can help preclude expensive and troublesome problems down the line.

Massachusetts Wage Statute
The best place to start is with the Massachusetts Wage Statute, G.L. c. 149 § 148B. The statute includes a presumption that a worker is an employee. The burden is on the employer to disprove employee status. The attorney general’s office (AGO) has issued an advisory intended to explain the Wage Statute, and to help employers make the correct classification. Known as Advisory 2008/1, the document makes several good points and provides enforcement guidelines. The AGO recognizes that many businesses lawfully and reasonably use independent contractors. The advisory notes that “[t]he AGO is cognizant that there are legitimate independent contractors and business-to-business relationships in the Commonwealth.

These business relationships are important to the economic wellbeing of the Commonwealth and, provided that they are legitimate and fulfill their legal requirements, they will not be adversely impacted by enforcement of the Law.” (Advisory, p. 5) The Wage Statute sets out a threepart test to determine an individual’s employee or independent contractor status. The first question to be addressed is whether the employer controls or directs the worker’s performance. The second question asks whether the service is outside the usual course of the employer’s business; only if it is outside can the individual avoid an “employee” classification. The AGO has indicated that it will look at whether the service performed is necessary or incidental to the employer’s core business. Some of the examples found in the advisory are helpful. A person hired to move furniture is incidental to the business of an accounting firm, but a drywall company can not legitimately classify as independent an individual who installs drywall. The third question allows classification as an independent contractor only if the worker “is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.” The question for the court is “‘whether the service in question could be viewed as an independent trade or business because the worker is capable of performing the service to anyone wishing to avail themselves of the service or, conversely, whether the nature of the business compels the worker to depend on a single

employer for the continuation of the services.’” (Advisory, p. 7, citing Coverall v. Division of Unemployment Assistance, 447 Mass. 852, 857-58 (2006)) There are particular factors that may be considered “red flags,” which strongly suggest misclassification of an employee as an independent contractor. These include failure to list an individual’s services on the books of the business, payment in cash; insufficient or no workers’ compensation coverage; a failure to provide the worker 1099 or W-2 forms; the provision of tools or supplies by the contracting entity; and the failure of the alleged independent contractor to pay income taxes or employer contributions to the Division of Unemployment Assistance. (Advisory, pp. 5-6)

IRS Regulations
The IRS has issued a publication for taxpayers, IRS Publication 15-A (2010): “Employee or Independent Contractor?” to help workers determine whether they are employees or independent contractors. The IRS looks at three main factors — behavioral control, financial control and relationship of the parties. The publication explains in some detail the components of each of these factors. Behavioral control includes the employer’s right to direct and control the worker. Indicia of control include the employer’s specification as to: where and when to do the work; what tools or equipment to use; what workers to hire; where to purchase supplies and services; which individual is to perform what work; and what order or sequence to follow. As the IRS has

CONDO MEDIA • APRIL 2011

Condo Media - April 2011

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