Beginning October 1, 2019, employers will begin withholding contributions under the Massachusetts Paid Family and Medical Leave Act (“PFMLA”). Much of the compliance guidance, including from payroll companies, is out of date regarding the inclusion of individual “independent contractors” in the workforce count and for contribution purposes. The “short-hand” guidance has stated that individuals to whom the employer issues a 1099MISC, and who are performing services in your trade or business or regularly engaged to perform services, need to be counted in your workforce if more than 50% of your workforce. Unfortunately, the trap is that employers who “count” these individuals for PFMLA purposes also should reclassify such individuals as W-2 employees because they are not properly classified as Independent Contractors in Massachusetts.
On August 14, 2019, the Massachusetts Department of Family Leave clarified and updated its guidance regarding the inclusion of individual 1099MISC workers. Notably, the Department expressly stated that “wages” for purposes of the PFMLA program have been aligned with the Massachusetts Unemployment Statute’s definition of wages. The updates also expressly clarified “who is a covered individual?” With regard to 1099 MISC workers, the only individuals covered by the PFMLA as part of the employer’s workforce are those who are misclassified as independent contractors. Thus, only individuals who should be W-2 workers are included in the employer’s workforce under PFMLA.
This is a significant change in the interpretation and guidance that was previously posted on the PFMLA website. It basically means that if you pay someone on a 1099 basis, and they do NOT meet the Attorney General’s three part A,B,C test – then they are counted in your workforce. That is – the workers are misclassified and should be W-2 employees. In order for a 1099-MISC worker to be considered part of your MA workforce count, the 1099-MISC contractor MUST:
- Perform services as an individual entity.
- Live in Massachusetts.
- Perform services in Massachusetts.
However, the additional August alert from the Department expressly clarifies this broad statement, and narrows it by adding that the 1099-MISC worker MUST NOT:
- Be an independent contractor as defined by the Massachusetts unemployment statute, (M.G.L. c.151A), which is a guiding authority for the PFML program in many respects.
The Massachusetts unemployment statute defines independent contractors as workers who meet the Attorney General’s three part test, known as the ABC test. The revised Guidance expressly provides:
- If a worker meets the criteria provided above and you have determined that the individual entity is not an independent contractor under the three-part test, then you should count them as a member of your Massachusetts workforce.
ALERT: Before including a 1099MISC worker as part of your workforce, the employer must carefully apply the ABC test. If the individual satisfies the ABC Test, he/she should NOT be included in the workforce for PFMLA. If the individual does not satisfy the ABC Test, the worker should be converted to a W-2 employee because he/she is misclassified under Massachusetts law. Unfortunately, state and federal laws are not consistent on the definition of an “independent contractor.” Thus, employers in Massachusetts should assure that the Massachusetts three-part ABC test is applied to avoid enforcement action by the Attorney General’s office for the misclassification of workers as independent contractors – including for all wage purposes, workers’ compensation coverage, and withholding obligations. At both the state and federal level, worker misclassification remains a targeted agency enforcement issue. Employers that use individual independent contractors in their workforce should contact labor and employment counsel to seek guidance on the potential misclassification of such workers. Employers must take action to ensure that all 1099MISC workers meet the ABC Test. Each part of the test must be satisfied, and in Massachusetts, the employer bears the burden of proof that the worker is properly classified as a 1099MISC worker under this stringent test.
© September 26, 2019
