Massachusetts employers are bracing for an onslaught of coordinated enforcement efforts by federal and state governments regarding the proper classification of employees.

The U.S. Department of Labor (DOL), the Internal Revenue Service (IRS) and several Massachusetts agencies signed a memorandum of understanding on September 19 allowing them to share information about employers they believe misclassify workers as independent contractors.

The agencies described the new enforcement program in a press release as an “effort to reduce the business practice of improperly classifying employees as contractors or other non-employees.” Massachusetts joins 10 other states – including Connecticut, Maryland, Minnesota, Missouri, Utah, Washington, Hawaii, Illinois, Montana, and New York – that have established enforcement collaborations with the federal government.

IRS Commissioner Douglas Shulman and Labor Secretary Hilda Solis (right) said the coordinated effort is important to “leveling the playing field.” 

Massachusetts employers should be aware that federal and state laws regarding independent contractor classification are not the same.  Even if you are in compliance with the IRS standards for independent contractor you will most likely not be in compliance with Massachusetts laws for independent contractors. 

For example, a Massachusetts company looking to hire a software designer as an independent contractor must prove that the work done by the designer is not done within the company’s usual course of business. Massachusetts employers also face the threat of mandatory treble damages for even inadvertent violations of state wage and hour laws.

The September 19 enforcement memorandum does not indicate how the federal and state governments will determine compliance for Massachusetts employers.

There are other developments on the worker classification issues as well:

• President Barack Obama’s Deficit Reduction Plan Includes a Worker Classification Proposal designed to raise tax revenue of $8 billion over 10 years by reclassifying workers now wrongly considered independent contractors. The proposal would give broad authority to the IRS to “require prospective reclassification of workers who are currently misclassified.”
• The IRS on September 21 unveiled a New Voluntary Worker Classification Settlement Program that permits taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. Employers who voluntarily reclassify workers under the program would face limited federal employment tax liability for the past non-employee treatment.
• AIM will testify at an upcoming Beacon Hill hearing in support of a bill filed by Representative Martha Walz (H.1412) to fix the Massachusetts independent contractor law.  The public hearing before the Joint Committee on Labor & Workforce Development is expected to occur in October.  The date and time has not yet been published.

Please contact Brad MacDougall (bmacdougall@aimnet.org) for updates on independent contractor legislative activity, including the date and time of the public hearing, contact.  Contact Tom Jones (tjones@aimnet.org) with questions regarding compliance and law related to classification.