Small Businesses Risk Fines for Non-compliance

Wage-Hour Laws Regarding Independent Contractors Enforced

(5/6/2010) Many small business owners may be violating Massachusetts and Federal law. Most workers now classified as 'independent contractors' should actually be classified as 'employees'. That's the message Attorney Kate Fitzgibbons, Assistant Attorney General, delivered to small business owners at a recent SFABA workshop on the topic.

The Massachusetts Attorney General's office and the Internal Revenue Service have stepped up enforcement of the wage and hour laws, with significant penalties for small business owners who mis-classify workers. Issuing a '1099' tax form for a worker will no longer serve as a means to avoid the law. 

Massachusetts Law Chapter149 Section 148B covers independent contractors and has a strict three-point test to make a legal determination of employee status - -and all three parameters must be met.

The test:
1. Freedom from control - Is the worker free from the employer's direction and control?
2. Outside the usual course of business - Is the worker performing a service for the employer that is not part of the usual course of the employer's business?
3. Independent  trade or business - Does the worker hold himself out to the public as an independently established business enterprise available for hire?

The answer to all three of these questions must be YES in order to legally treat someone as an independent contractor.

If any of the answers to these questions is a NO, then the person is legally an employee (e.g. employer must withhold taxes and pay payroll taxes).

The Wage and Hour laws also set out the minimum standards for when, how and how much employees must be paid, and the documentation requirements.

For more information, call the Fair Labor Hotline at 413-784-1240, or visit www.laborlowdown.com.