Employee or Independent Contractor? Getting It Right in Massachusetts Can Save Your Business

As your Mansfield small business begins to grow, the thought of bringing on help is exciting. The temptation is to hire someone as an "independent contractor" but should the be classified and an Employee? It seems simpler, cheaper, and avoids the complexities of payroll taxes and benefits. You just pay their invoices and file a 1099 form at the end of the year, right?

Unfortunately, in Massachusetts, it's not that simple. Our state has one of the strictest tests in the country for classifying workers, and getting it wrong can lead to crippling penalties that have put companies out of business. As a business attorney, this is one of the most dangerous legal minefields I help local entrepreneurs navigate.

The Big Misconception: A Contract Doesn't Make a Contractor

Many business owners believe that if they have a written agreement stating a worker is an independent contractor, that's all they need. This is false. In Massachusetts, the law presumes a worker is an employee. The burden of proof is entirely on you, the employer, to prove otherwise by satisfying a strict, three-part "ABC Test."

The Massachusetts ABC Test (M.G.L. c. 149, § 148B)

To classify a worker as an independent contractor, you must prove all three of the following conditions are met:

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

   • Plain English: You can't dictate how or when they do the work. You can assign a project and a deadline, but you can't manage their day-to-day process, require them to work at your office during set hours, or provide mandatory training on your methods.

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

   • Plain English: This is the toughest hurdle for most businesses. If you run a marketing agency, you cannot hire a "freelance" marketer as a contractor to do marketing work for your clients. If you own a bakery, you can't hire a "contract" baker. The service must be ancillary to your core business, like hiring a plumber to fix a sink or an IT consultant to set up your network.

3. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

   • Plain English: The worker must have a legitimate business of their own. Do they have other clients? Do they have their own business name, website, or insurance? If you are their only source of work, they look a lot like an employee.

The Crushing Cost of Misclassification

If a state agency determines you've misclassified an employee, the consequences are severe:

• Treble Damages: You could owe three times the amount of unpaid wages.

• Back Taxes & Penalties: You'll be on the hook for back unemployment insurance contributions and other payroll taxes.

• Fines and Stop-Work Orders: The Attorney General's office can issue significant fines and even shut down your operation.

• Personal Liability: You can be held personally liable for these costs.

Getting this right from day one is not just good practice; it's essential for survival. Before you hire your first team member, it's critical to understand these rules.

Somnium Advisory helps Mansfield-area businesses create solid hiring practices and agreements that comply with Massachusetts law.