- Employee vs. Subcontractor
- IRS Guidelines
- Massachusetts Guidelines
- Working with Contractors
- Resources and Links
Employee vs. Subcontractor: Massachusetts Guidelines
Depending on why you are being audited, Massachusetts may use one of two sets of guidelines to determine if someone is an employee or subcontractor.
If it is a 'routine' audit regarding payroll tax withholding by the DOR, the same guidelines the IRS uses will generally apply. However, if you are being audited because a former worker complained that you misclassified them (or they didn't pay their taxes, are being audited themselves and blame you for not withholding), expect something different.
The Independent
Contractor Law
(MGL ch 149, sec 148B)
uses a far stricter,
three-factor 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; and
(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.
Why are these stricter than the IRS guidelines?
The Massachusetts law provides only three test factors, and they are open to interpretation. You can read the full text of the Massachusetts Independent Contractor Law (MGL ch 149, sec 148B) here.
For example, let's assume you hire a web designer to write code for a website. If you require they do the work using a specific programming language or coding standard and attend project meetings, it could be interpreted as controlling their work, which fails the first test.
Suppose you are also a web designer, but you subcontract a project to someone else? Now they are doing work which falls within the usual course of your business, failing the second test.
What if the person you're working with has an independant business as a graphic designer? They may be trying to expand their business to include website design and programming, but that's not how they market themself. Now the work they did for you could be interpreted as different from their 'usual' business, failing the third test.
You see how problematic this is? Under the IRS guidelines, if you can demonstrate the person you're working with markets to the general public, provides their own equipment and training, works on their own schedule, etc. you can contract with them for specific projects as needed without hiring them. Under the three Massachusetts rules, you may find that none of those things matter.
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