LEGAL MATTERS: Are You An Independent Contractor Or An Employee?

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Wednesday, April 17, 2013

John T. Longo, GoLocalWorcester Legal Contributor

The escort ads are gone from Craigs List but there are still plenty of people advertising illegal activities there. Consider this from a recent ad by a Massachusetts landscaping company looking for a crew member:

“You must be prepared to be paid by check as a subcontractor (you will be responsible for your own taxes and will receive a 1099 in December)”

Or this by a fitness center in Rhode Island looking for a front desk receptionist:

“Candidates must agree to a 90-day evaluation period for which compensation will be made in the form of 1099 [independent contractor] . . “

In both cases the companies are advertising that they intend to break the law and pay people as “independent contractors” instead of as employees.

True independent contractors are generally given a task that needs to be accomplished, a timeframe within which to complete it, and nothing else. They do the task however they want, using their own tools and equipment, with no supervision by the company that hired them. Unlike employees, they usually do not punch a clock, work at the company’s office, get bonuses or wear uniforms. So I cannot imagine any office worker, or landscaper, every qualifying as an independent contractor.

Misclassifying someone as an independent contractor will save the employer some money in the short run but it bad idea for everyone involved. Workers hired as independent contractor will:

• Pay about 7% more in taxes and probably have to file tax forms every four months;

• Not be covered by workers compensation insurance;

• Be ineligible for unemployment; and

• Be unable to take medical or pregnancy leave under the Family and Medical Leave Act.

Employers who misclassify employees as independent contractors:

• Can be held personally liable for any injuries the workers suffer;

• Can be fined $500 - $3,000 per employee in Rhode Island;

• Can be fined up to $25,000 and put in jail in Massachusetts;

• Face IRS penalties of up to $100,000 and maybe felony tax evasion charges; and

• Might have to pay the workers double their wages if they sue.

The penalties are so severe because the IRS, the agency that typically decides who is an independent contractor and who is an employee, has form SS-8 companies can use to ask the IRS its opinion. (Further proof that the IRS has a form for everything.) Employers in Massachusetts should also get advice from a good attorney because the Massachusetts Attorney General has made enforcing Massachusetts’ law on the issue a priority.

Whether you are hiring people or looking for a job, check to make sure you are on the right side of the law. A good place to start is with the IRS; it has a good video and web site that both talk about the issue. If you like checklists, you can also read this tax decision that lists the 20 factors you should consider.

John Longo is a consumer rights attorney practicing law in Rhode Island and Massachusetts. He represents consumers who have disputes with businesses, employees cheated out of their wages or overtime, car buyers stuck with Lemons, and people in need of bankruptcy protection. He is a member of the National Association of Consumer Advocates, the National Association of Consumer Bankruptcy Attorneys, and the Rhode Island Association for Justice.

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