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Massachusetts Independent Contractor Law Ignores Changing Workplace

Posted by John Regan on Nov 3, 2011 11:32:00 AM

One out of every three American workers, from software engineers and researchers to graphic designers and nannies, works independently outside the bounds of traditional 9-to-5 employment.

Independent ContractorIt’s part of the most profound shift in the workplace since the Industrial Revolution. It’s a shift that is likely to accelerate as freelance or independent jobs, which have increased by 156,000 nationally so far in 2011, continue to proliferate even during a slow economy.

But none of that job growth can take place legally in Massachusetts. That’s because state law imposes a confusing and complex three-factor test that virtually ensures that no individual in Massachusetts can unambiguously pass the legal test to qualify as an “independent contractor.”

The Legislature has an opportunity to change that today when the Joint Committee on Labor and Workforce Development considers two bills that would align the state independent contractor law with federal Internal Revenue Service regulations and laws in other states. The changes would help thousands of legitimate Massachusetts independent contractors, including drivers, doctors, dental hygienists, financial planners and artists, who choose to manage and operate their own business and earn a living outside a traditional employer-employee relationship.

Current Massachusetts law requires employees to meet three requirements to be considered an independent contractor:

  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.

    a. The failure to withhold federal or state income taxes or to pay unemployment compensation contributions or workers compensation premiums with respect to an individual’s wages shall not be considered in making a determination under this section.
    b.  An individual’s exercise of the option to secure workers’ compensation insurance with a carrier as a sole proprietor or partnership pursuant to subsection (4) of section 1 of chapter 152 shall not be considered in making a determination under this section.

The problem? An advisory from the Attorney General in 2004 concluded that “the new law is so broad in its definition of employee that virtually every occupation, individual entrepreneur and every employer, including the public sector, have been affected, putting Massachusetts at odds with every other state in the country.”

House Bill 1412 would simply replace the word “and” with “or” after Section 2. The change would bring Massachusetts into alignment with the 20-factor IRS test for determining employment versus contractor status, and validate normal and accepted employment practices in many sectors of the economy.

Critics of reforming the independent contractor law paint a Dickensian picture of unscrupulous employers using independent contractor status to deprive workers of benefits. But research indicates that the growing trend toward a freelance economy has more to do with workers themselves than with companies.

The 2011 Freelancers Union Annual Independent Worker Survey asked respondents to rank the top five reasons they became independent workers, and overwhelmingly respondents selected personal preferences.

People work independently by choice because:

  • 75 percent included “flexible schedule”
  • 55 percent included “diversity of projects”
  • 49 percent included “freedom from office politics”
  • 48 percent included “more creative control”
  • 35 percent included “can make more money”

“As the U.S. economy transitioned from agrarian to industrial in the 19th and early 20th centuries, the way Americans worked also shifted dramatically from the farms to the factories. And now, in the 21st century, we’re seeing another transition from full-time, long-term, traditional jobs for one employer to flexible, multiple projects for various clients,” the survey concluded.

“Independent workers— including the self-employed, on-call workers, temps, and part-timers—play an increasingly significant part in our nation’s economy, having grown to almost one-third of the U.S. workforce as of 2005.  Not only is traditional employment being replaced by independent work, but employees are also increasingly relying on freelancing to supplement their traditional work.”

Policy makers in Massachusetts must recognize that restrictive laws will not stop economic transformation from occurring.  Rather, the state needs to play a constructive role of overseeing what is right among partners who are voluntarily entering into these profitable, non-traditional working relationships.

(Follow the hearing on Twitter, @aimbusinessnews)

 

Topics: Independent Contractor Law, Employment Law, Human Resources

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