By Patrick O'Brien, JD, legal coordinator, American Med Spa Association

Categorizing workers as employees or as independent contractors is one of the more complex business decisions an employer can make. The number of filings, documentation, taxes, fees, benefits, accounting and bookkeeping that are required for employees make hiring independent contractors very simple by comparison. Unfortunately, governments have a stake in making sure that employers categorize as many of their workers as employees as they can. Mandated worker benefits, safety nets, and wage and hour rules are all put in place to protect and support employees, and all states have rules on how workers should be categorized. Here is a previous post on a similar situation in California. Massachusetts is notable in this regard because its rules are particularly strict and carry substantial penalties for violations.

Employee or Independent Contractor

In the Massachusetts Labor and Industries Law, a worker who performs services for an employer is deemed to be an employee unless three conditions are met.

1. The person must be free from control and direction in their work, both in the contractual terms and in actuality. An example of this would be hiring a landscaper. Once you have settled on the design for the garden, you are not out there telling him when to show up for work, where to dig or how long to take breaks.
2. The service is performed outside the usual course of the employer's business. This is the primary reason why many, if not all the providers in a medical spa will be considered employees. You may not hire an independent contractor to provide the same sort of services you are in the business of providing.
3. The final condition is that the person is normally engaged in an independently established trade or profession that is the same as the services for which you are hiring them. Here, someone like a receptionist would still need to be an employee since, although they are not providing the same service the employer provides, they are also not engaged in an independently established trade or occupation.

The worker would need to meet all three of these requirements to have the option of being considered an independent contractor. Clearly, any nurse, physician assistant or other provider employed at a medical spa is not able to meet these conditions, and so would be deemed an employee.

There are several elements common to independent contractor relationships that are expressly not considered in this law. It does not matter if the employer does not withhold state or federal income taxes or make unemployment compensation or worker's compensation payments with regard to the worker's wages. It also doesn't matter if the worker secures worker's compensation insurance as a sole proprietor or partnership. So, even when the worker and employer are both under the impression that it is an independent relationship and the compensation reflects that, it does not mean that the worker is, in fact, an independent contractor. Only the three elements covered above are considered in determining the employment relationship.

Penalties

To back up these hard and fast rules, Massachusetts provides penalties for breaking them. Employers who willfully misclassify workers can be subject to both civil and criminal penalties. A first offense can result in up to $25,000 in fines and up to a year in prison, with second and subsequent offenses doubling those penalties. If the violation is found to not be willful, the penalties are $10,000 in fines and up to six months in prison, with subsequent penalties increasing to $25,000 and one year of imprisonment. Additionally, the president, treasurer and any other officer having management authority in the entity are liable for penalties. As an alternative and in addition to the criminal penalties, the attorney general may elect to issue warnings and civil penalties.

These rules, and similar ones in other states, highlight the fact that seemingly innocent choices in how you structure your business can result in serious issues and complications. Your state's workforce department and secretary of state will typically have useful resources available for small businesses owners. Retaining advisors who can help guide you through these issues and provide tailored guidance can be an invaluable investment.

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