Independent Contractor or Employee in Massachusetts?

What Does Classification as Independent Contractor or Employee in Massachusetts Matter

Before diving into the specifics of Massachusetts independent contractor law, let’s look at why it matters whether a business treats an individual worker as an independent contractor or employee in Massachusetts. Generally speaking, employees are entitled to certain rights and benefits from their employer, including:

• Minimum Wage and Overtime:  Employers must obey state and federal minimum wage laws and pay employees a minimum wage for all hours worked and  overtime for any hours worked beyond 40 in a workweek. The current minimum wage in Massachusetts for most employees is $15 per hour and the overtime rate is 1.5 times the regular rate.  See M.G.L. c. 151 §1 and §1A.  Employers must also keep detailed records for at least 3 years about each employee concerning the hours worked, the amount paid, and various other information and to turn these over to the attorney general or employee upon request. See Id. at §15. 
• Timely Payment of Wages: Under the Massachusetts Wage Act, M.G.L. c. 149 §148 (the “Wage Act”), employers are required to pay wages to their employees promptly after the wages are earned, which typically means weekly or biweekly.   Notably, under the Wage Act, all wages due and owed must be paid to the employee on his or her termination date (if involuntarily discharged) or the next regular pay date  if the employee voluntarily leaves.  The exact scope  of what constitutes “wages” is hotly contested, but includes salary or hourly pay, holiday and vacation pay or PTO time, and commissions that are “definitely determined” and “due and payable”. Id.   These timely pay requirements and other provisions of the Wage Act  protect employees by ensuring that employers timely pay employees for everything that’s owed for the work they provided.  
• Workers’ Compensation Insurance: Employers are required to provide workers’ compensation insurance for all employees to cover job-related injuries. See M.G.L. c. 152. Thus, any injured employee can typically recover the costs of medical treatment, lost wages, and possibly vocational rehabilitation and other benefits.  
• Unemployment insurance: Employers are also required to contribute to unemployment insurance for employees, which provides benefits to employees who lose their jobs through no fault of their own. See M.G.L. c. 151A.  Typically, employees who lose their jobs are eligible to receive up to  ½  of their average weekly gross wages up to the legal maximum, for a period of time, plus allowances for dependents. See Department of Unemployment Assistance | Mass.gov
• Tax withholding & Payment: Employers are also responsible for withholding state and federal income and payroll taxes from employees’ wages and timely remitting these taxes to the appropriate federal and state governments.  See Withholding Taxes on Wages | Mass.gov.  This includes withholdings for Social Security (FICA), Medicare, federal and state income tax, Paid Family Medical Leave, and others.  Since employers handle this, employees do not have the administrative burden of accounting for and making regular tax payments to federal or state governments, except for any income earned outside of employment.   
• Certain leave rights: Employees may be entitled to paid or unpaid leave under various state and federal laws, such as the Massachusetts Earned Sick Time Law, Massachusetts Paid Family Medical Leave, the Family and Medical Leave Act (FMLA), and others.  
• Other Benefits:  Companies also often offer their employees other benefits like health insurance, disability insurance, paid time off, and retirement plans. These benefits are usually not available to anyone who is not an employee of the business

Independent contractors, on the other hand, are self-employed individuals who are responsible for their own taxes, benefits, and insurance.  Generally, they are not entitled to any benefits mentioned above from any person or business who pays for their services. As a result, it is often more cost effective and administratively efficient for a business to hire independent contractors  as opposed to employees, which is why many businesses attempt to do so.

The Massachusetts Independent Contractor Law: The ABC Test

The Massachusetts Independent Contactor Law, M.G.L. c.149  §148B, was passed  to prevent businesses from improperly treating workers as independent contractors and “established a standard to determine whether an individual performing services for another shall be deemed an employee or an independent contractor”. Chambers v. RDI Logistics, Inc., 476 Mass. 95, 100 (Mass. 2016). Under this standard, an individual ”performing any service . . . [for a business] is presumed to be an employee.”  Patel v. 7 Eleven, Inc. 494 Mass. 562, 566-567 (Mass. 2024) (italics added).   Thus, under the Massachusetts Independent Contractor Law, the answer to the question independent contractor or employee in Massachusetts is that every individual who provides services for your business is presumed to be an employee and must be provided with all the benefits of employment!  

To overcome this presumption, a business must prove that a paid worker qualifies as an independent contractor by meeting all three prongs of the following test, often referred to as the the “ABC Test”:

1. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact;
2. The service is performed outside the usual course of the business of the employer; and
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.

M.G.L. c. 149 §148B (a). See also Patel, 494 Mass. 562 at 567.  For an individual to qualify as an independent contractor, all 3 prongs must be satisfied and if any prong is not met., the individual should be classified as an employee.

Breaking Down the Massachusetts ABC Test:

Let’s explore each prong of the Massachusetts ABC test::

1. Free from Control and Direction: 

This first prong focuses on whether the individual is free from control of the hiring party. It asks: Is the individual free from the employer’s control and directions in terms of the means and methods by  which the individual performs the work?  

Independent contractors typically complete their jobs with minimal direction from the person or business hiring them or specific requirements about the hours that the contractor will spend on the job. Think of the electrician you hire to fix a problem in your home. You don’t tell the electrician how to fix the problem, what tools to use, or specify the hours that the electrician has to work. You simply tell the electrician about the problem and let him or he work on fixing it.  

Generally speaking, all independent contractors should fit the home electrician model. Some questions to consider for determining whether a worker should be classified as an independent contractor or employee in Massachusetts include:

• Who sets the hours? Employees usually work set hours determined by the employer. Independent contractors typically set their own schedules.
• Who provides the tools and equipment? Employees often use tools and equipment provided by the employer. Independent contractors generally use their own.
• Who dictates the work methods? Employers often provide detailed instructions and guidelines for employees. Independent contractors typically have more autonomy in how they perform their work.
• Personal Services?  Employees are required to provide their services personally and cannot have someone else perform their services.  Independent contractors often have their own employees or subcontractors who can perform the services. 
• Who supervises the work? Employees are usually supervised by managers or supervisors. Independent contractors typically work independently.
• Who evaluates the work? Employees often have regular performance reviews conducted by the employer. Independent contractors are typically evaluated based on the final product or service delivered.
• Multiple Clients? Employees often only have one employer. Independent contractors typically have multiple clients.. 

None of these considerations are dispositive for determining whether a worker should be classified as an independent contractor or employee in Massachusetts,  but what matters is whether the worker’s activities are in fact carried out with minimal direction. See, e.g.,  Sebago v. Boston Cab Dispatch, Inc. 471 Mass. 321, 332 (Mass. 2015) (finding that taxi cab drivers are independent contractors, in part, because they “receive minimal direction  from medallion owners or radio associations”) 

1. Outside the Usual Course of Business:

The second prong of the Massachusetts ABC test focuses on whether the individual is performing work within the employer’s usual course of business.  But what does this mean?  

In a 2008 Advisory, the Office of the Attorney General stated for purposes of the second prong, it  “will consider whether the service the individual is performing is necessary to the business of the employing unit or merely incidental in determining whether the individual may be properly classified” as an independent contractor. An Advisory from the Attorney General’s Fair  Labor Division M.G.L. c. 149 s. 148B 2008/1 (“Advisory”) at p. 6 (emphasis added). If the work is “necessary” to the employing entity’s business, the individual hired must be considered an employee of the business. But if the work is “incidental”, the individual can be considered an independent contractor so long as the other prongs are satisfied. 

Courts will typically provide “substantial deference” to the Attorney General’s interpretation of the Wage Act.  See Chambers, 476 Mass. 95, 109  n.17 (citing Smith v. Winter Place LLC, 447 Mass. 363, 367-368 (2006).  So that means when determining whether someone is an independent contractor or an employee in Massachusetts, you must determine whether the person being hired is performing work that is a necessary part of your operations.  The Advisory provides some examples to help:

• A drywall company classifies an individual who is installing drywall as an independent contractor. This would be a violation of prong two because the individual installing the drywall is performing an essential part of the employer’s business.
• A company in the business of providing motor vehicle appraisals classifies an individual appraiser as an independent contractor. This would be a violation of prong two because the appraiser is performing an essential part of the company’s business.
• An accounting firm hires an individual to move office furniture. Prong two is not applicable (although prongs one and three may be) because the moving of furniture is incidental and not necessary to the accounting firm’s business.

See Advisory at 6.  

This prong is often the most difficult for a business to overcome with respect to classifying an individual as an independent contractor or employee in Massachusetts and courts often find that this prong is not met.  See e.g. Carey v. Gatehouse Media Massachusetts I. Inc. 92 Mass. App. Ct. 801, 806-811  (2018); (finding that sales delivery drivers are not independent contractors because they provide services  in the usual course of a newspaper publishing business);   Valle v. Powertech Indus. Co. Lt. 381 F.Supp. 3d 151, 167  (D. Mass 2019) (finding that the sales person is not an independent contractor for a manufacturing business because his services were not incidental to the business).  

1. C. Independently Established Trade, Occupation, Profession, or Business: 

The third prong of the ABC test for determining independent contractor or employee in Massachusetts looks at whether the  individual providing the services is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the services being provided.   According to the Massachusetts Supreme Judicial court you need to ask

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 services, or conversely whether the nature of the business compels the worker to depend on a single employer for the continuation of the services.

Athol Daily News v. Bd. of Review of the Div. of Emp’t & Training, 438 Mass. 171, 181, (2003).  

There are certain factors that tend to show whether an individual has an independently established trade or business as opposed to being an employee of your business:

1. The individual worker is free to operate an independent enterprise and to perform services without hindrance from your business;
2. the independent enterprise was created by the individual worker and exists separate and apart from the worker’s relationship with your business;
3. the worker’s independent enterprise is not interconnected with, and is not dependent in any way upon, engagement by your business, or other companies engaged in the subject industry; and
4. the worker’s independent enterprise would survive as an ongoing business entity, notwithstanding the termination of the relationship with your business

See Bos. Bicycle Couriers, Inc. v. Deputy Dir. of the Div. of Emp’t & Training , 56 Mass. App. Ct. 473,  480-491 (2002).  None of these factors are dispositive for determining whether a worker qualifies as an independent contractor or employee in Massachusetts,  but a worker who satisfies most of them is more likely to be considered to have an independent trade or business and to satisfy the third-prong.

Penalties for Misclassification of Employees:

As you’ve seen, the Massachusetts ABC test is complex and all three prongs must be met before classifying a worker as an independent contractor.  If a worker fails to meet any prong, he or she should be classified as an employee. Misclassification of employees in Massachusetts  has severe consequences, including: 

• Treble Damages, Attorneys Fees and Costs:  Employees who have been misclassified as independent contractors  may file a civil action and can recover mandatory treble damages for any lost wages and benefits, attorneys fees and costs. See M.G.L. c. 149 § 150 
• Statutory Prejudgment Interest of 12%:. Misclassified employees who prevail at trial are entitled to receive statutory interest at the rate of 12% per annum. See M.G.L. c. 231  § 6H and § 6B.  This interest only applies to lost wages and benefits and not the treble damages. See George v. Nat’l Water Main Cleaning Co., 477 Mass. 371, 371-72 (2017) (holding that statutory prejudgment interest applies to lost wages and other benefits awarded  under M.G.L. c. 149 § 150 but not the treble damages).    
• Civil Citations:  The Massachusetts Attorney General’s Fair Labor Division regularly investigates employers for potential violations of the Massachusetts independent contractor law or the Wage Act, usually after receiving a worker complaint.  See Independent contractors | Mass.gov. If investigated and found deficient, civil citations may issue with penalties between $7500 to $25,000 per violation for first time offenders.  See Enforcement authority | Mass.gov.  These penalties add up because a separate violation can occur for each pay period when a worker is not properly classified. 
• Criminal Penalties:.  Criminal prosecution may also ensure for willful violations of the Massachusetts Independent Contractor Law. See M.G.L. c. 149 § 27C. A first-time offense carries up to $25,000 in fines and imprisonment of up to one (1) year. Subsequent offenses can result in a fine of up to $50,000 and imprisonment of up to two (2) years. 
• Risk of Personal Liability:  There is a significant risk of personal liability for misclassification violations.  According to M.G.L. c. 149 § 148B(d), “the president and treasurer of a corporation and any officer or agent having the management of the corporation or entity shall be liable for violations of this section.”   Thus, anyone who has “significant management responsibilities over … [the entity] similar to those performed by a corporate president or treasurer, particularly in regard to the control of the finances or payment of wages” is at risk for being held personally liable under the Massachusetts Independent Contractor law. See Segal v. Gentrix, LLC, 478 Mass 551, 568-569 (2017) (finding that directors and investors are not personally liable under the Wage Act unless empowered).

Best Practices for Small Businesses 

Don’t play with fire!  To the extent feasible, the best practice for every small business confronted with the question independent contractor or employee in Massachusetts is to treat every individual worker as an employee and not an independent contractor!  The presumption in Massachusetts is that all individuals providing services to a business are employees and the business has the burden of proving otherwise. 

But, if you wish to hire someone as an independent contractor, here are some best practices:  

• Conduct a thorough assessment: Carefully analyze the working relationship using the Massachusetts ABC test and make sure that all 3 prongs are satisfied.   If in doubt, err on the side of caution and treat the individual as an employee.  
• Document the relationship: Maintain detailed records of the working relationship, including contracts, invoices, payments, and communication. The contracts should specify that the individual is an independent contractor and is responsible for his or her own taxes, insurance, tools, etc. . All invoices should be paid by check, wire or credit card and should be accounted for. 
• Do Not Provide Equipment, Tools or Supplies:  An independent contractor should be responsible for his or her own equipment, tools or supplies. 
• No Overlap with Services Provided by Employees:  Do not hire an independent contractor to provide services that your business has employees providing.    For example, if most of your salespeople are employees, you should not have some who are being paid as independent contractors. The fact that most sales people are employees is a sure sign that the individual being paid as an independent contractor is likely misclassified.
• Form W-9 and 1099’s.:  If you want to pay someone as an independent contractor, make sure to have the individual complete IRS Form W-9 so that you can issue a 1099 at the end of the year. See Forms and associated taxes for independent contractors | Internal Revenue Service.
• Require Proof of Insurance:  Your contract should require that the independent contractor carry the appropriate insurance such as workers compensation, professional liability, general liability insurance, or whatever other type you think is necessary.  Verify the coverage and keep records. 
• Pre-Existing LLC or Corporation: Favor independent contractors who are currently operating through a pre-existing entity such as a corporation or limited liability company (“LLC”) as they may not be able to bring a misclassification claim. See Weiss v. Loomis, Sayles & Co., 104 Mass. App. Ct. 1, 2-3 (2024) (noting that individuals providing services through an intermediary entity (like a corporation or LLC ) may not have standing to pursue a misclassification claim because the … [Massachusetts Independent Contractor Law] was not intended to bar “legitimate business-to-business relationship[s].”) (citation omitted).  However, you cannot ask someone to form an entity for the purpose of providing services to your business as that may be considered an illegal attempt to avoid employee misclassification. See id.  See also Advisory at 5  (stating that the Attorney General will enforce the Independent Contractor law against entities that contract with corporations or LLC “that exist for the purpose” of avoiding the law). 
• Seek legal counsel: Consult with an experienced employment attorney to ensure compliance. The laws are complicated here and there is a lot at risk!

Conclusion:

Understanding the distinction between independent contractors and employees is crucial for small business owners in Massachusetts.  The presumption in favor of employees and the strict Massachusetts ABC test leaves little room for error.  Misclassification of employees can lead to significant negative legal and financial consequences. By carefully assessing worker relationships, documenting agreements, and seeking legal counsel, you can ensure compliance and protect your business.

Are you confident in your worker classifications? Don’t leave your business vulnerable to costly mistakes!  Schedule a consultation with our experienced legal team today to review your current practices and ensure compliance with Massachusetts employment laws. Let Bross Law, LLC help you navigate the complexities of worker classification and protect your business’s future. Contact us for a confidential discussion and take the first step towards peace of mind!