Monthly Tax Tip - September 2007

This month we are bringing certain legislative developments to your attention that may have significant implications for business if you employ independent contractors in Massachusetts. Although the legislation was passed in 2004, efforts to lessen the impact have not been successful. The consequences are such that we feel our clients should be reminded of the details.

As a result of legislation that became effective July 19, 2004, under the title "An Act Further Regulating Public Construction in the Commonwealth," an individual who performs any service shall be considered an employee under Massachusetts law unless:

• 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

• The service is performed outside the usual course of the business of the employer; and

• 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.

Unless the individual meets all three of these standards, they are presumed to be an employee for purposes of Massachusetts law. Other factors, including the failure to withhold federal or state income taxes or to pay unemployment compensation contributions or workers compensation premiums are of no relevance to the determination of their employment status.

Failure to properly classify an individual as an employee is punishable by criminal penalties including imprisonment and substantial fines, civil remedies including substantial fines, and debarment from performing work for public entities in Massachusetts.

In addition to the business entity, the president and treasurer of a corporation and any officer or agent having the management of the corporation or entity shall be personally liable for any violation with respect to the proper classification of individuals as employees.

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