Massachusetts offers dueling standards for employee/contractor status.

AuthorDay, Susan K.

Massachusetts businesses have to comply with opposing sets of rules for determining whether a worker is an employee or an independent contractor. These conflicting provisions result in two separate tests for employee status: one applies to qualification for employee benefits, the other to withholding requirements.

Massachusetts Legislative Changes

Until 2004, Massachusetts followed guidelines set by the Internal Revenue Code and applicable regulations to decide whether workers were employees or contractors. Thus, the 20-question test for worker classification applied for both Federal and state purposes; see Rev. Rul. 87-41.

Independent Contractor Law: However, on July 19, 2004, the Massachusetts legislature enacted a new law, as part of a public construction bill, that affects the classification of workers in all industries. The Independent Contractor Law (M.G.L. c. 149, [section] 148B), which addresses worker classification, replaced the 20-question test with a far stricter, three-factor test; see "An Advisory from the Attorney General, Chapter 193 of the Acts of 2004, Amendments to Massachusetts Independent Contractor Law, M.G.L.c. 149 sec. 148, 2004/2," (Advisory) available at www. ago.state.ma.us/filelibrary/148B Advisory.pdf. A subsequent law increased the civil and criminal penalties for misclassifying workers as independent contractors; see M.G.L.c. 149, [section] 148B(d).

TIR: On the other hand, the Massachusetts Department of Revenue recently clarified that the 20-question test would continue to apply for withholding purposes. According to Technical Information Release (TIR) 05-11 (9/13/05), "Effect of New Employee Classification Requirements under G.L.c. 149, [section] 148B on Withholding of Tax on Wages under G.L.c. 62B," the statutory definition of "employee," for withholding purposes, is found in Chapter 62B and, thus, is not affected by the amendment to the classification of employees under Chapter 149.

Practical Application

Under the current rules, employers may have to provide employee benefits to a worker classified as an independent contractor for withholding purposes. The Independent Contractor Law creates a presumption of employee status, unless each of the following factors is present:

  1. The individual is free from control and direction in connection with the performance of a service, both under the individual's contract for the performance of service and in fact.

  2. The service is performed outside the usual course of...

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