The Commonwealth of Massachusetts has drawn a bright line in terms of how we determine who is considered an employee (W2) and who is considered a sub-contractor (1099). For years this has been determined in a number of ways ranging simply from how you chose to pay someone, how they wished to be paid, what the MA Workers Compensation laws dictated or what the I.R.S.rules stated.
As employers and employees, we no longer have that choice. Under law MGL 149, EVERYONE IS CONSIDERED AN EMPLOYEE UNLESS ALL 3 OF THE FOLLOWING STANDARDS ARE MET:
- The person acting as a sub-contractor must be in contract and in fact free from your control.
- The person acting as a sub-contractor must be performing activity outside the scope of the activity of your company.
- The person acting as a sub-contractor must be performing the same activity as they perform for you for the majority of the work week and when they work for others.
If all 3 standards are not met then the party is presumed to be an employee. That is it. To reinforce this, the law even states that this law supersedes all other laws.
For insurance this has ramifications in how your General Liability and Workers Compensation audits will be handled. Chapter 149 empowers insurance carriers to collect additional premium for GL and WC on those you had once deemed to be a sub contractor by now classifying them as employees, and subject to premium calculations. To help your company be prepared for policy year end audits, you may wish to:
- Review all non W2 workers to see if they meet the 3 rules above and if not, are you including their payroll in your GL and WC premium calculations.
- Collect certificates from all non-W2 people working on your behalf with Workers Compensation and General Liability. This will allow their payroll to be exempt in most cases.
- If person in question is a sole proprietor, request that the certificate state that the sole proprietor has opted in for WC coverage.
- Obtain a signed agreement from the sub-contractor stating that they are a Massachusetts Company, not employees of your company, not under the control of your company and they accept responsibility for carrying their own general liability and workers compensation coverage.
A careful review of your work force and proper planning can help you avoid an audit shock due to additional premium being collected at policy year end.
The person acting as a sub-contractor must be in contract and in fact free from your control.
- The person acting as a sub-contractor must be performing activity outside the scope of the activity of your company.
- The person acting as a sub-contractor must be performing the same activity as they perform for you for the majority of the work week and when they work for others.
If all 3 standards are not met then the party is presumed to be an employee. That is it. To reinforce this, the law even states that this law supersedes all other laws.
For insurance this has ramifications in how your General Liability and Workers Compensation audits will be handled. Chapter 149 empowers insurance carriers to collect additional premium for GL and WC on those you had once deemed to be a sub contractor by now classifying them as employees, and subject to premium calculations. To help your company be prepared for policy year end audits, you may wish to:
- Review all non W2 workers to see if they meet the 3 rules above and if not, are you including their payroll in your GL and WC premium calculations.
- Collect certificates from all non-W2 people working on your behalf with Workers Compensation and General Liability. This will allow their payroll to be exempt in most cases.
- If person in question is a sole proprietor, request that the certificate state that the sole proprietor has opted in for WC coverage.
- Obtain a signed agreement from the sub-contractor stating that they are a Massachusetts Company, not employees of your company, not under the control of your company and they accept responsibility for carrying their own general liability and workers compensation coverage.
A careful review of your work force and proper planning can help you avoid an audit shock due to additional premium being collected at policy year end.
IMPORTANT NOTICE: The information presented here is for informational purposes only and should not be relied on as legal advice. No one should act or refrain from acting on the basis of the information provided but should instead seek the appropriate legal advice on the particular facts and circumstances at issue from a properly licensed attorney.