Monday, January 28, 2019

Varying Independent Contractor Tests Apply to Maryland Employees

Employees in Maryland enjoy our broad array of worker protection statutes.  Employees may qualify for sick leave and parental leave.  They can sue for overtime and lost wages (and may be eligible for triple damages).  They may be eligible for unemployment.  Employers, of course, are required to withhold income and payroll taxes for their employees.

Independent contractors get bupkis (nothing).  They likely have to pay self-employment tax.

This disparity in rights creates an incentive for employer to push individuals toward being classified as independent contractors. 

But, could you be an employee for one purpose and an independent contractor for another?   The answer is, "yes."  That is because there are different independent contractor tests for different statutes.

The broadest test is called the "ABC" test because all three prongs of the test must be met.  It applies to claims for unemployment and the Maryland Workplace Fraud Act (which only applies in the construction and landscaping industries).  To be an independent contractor under this test the employee must be:
  • free from control and direction;
  • performing work in his or own business or occupation; and
  • either (i) performing work that is different than the business of the person for whom the work is performed; or (ii) performing the work in a different location than the person for whom the work is performed.

A narrower "economic realities" test applies to most other Maryland statutes.  This flexible approach focuses on whether the worker is economically dependent on the business to which he renders.  It looks at 

  • the degree of control that the employer has over the manner in which the work is performed;
  • the worker's opportunities for profit or loss dependent on his managerial skill;
  • the worker's investment in equipment or material, or his employment of other workers;
  • the degree of skill required for the work;
  • the permanence of the working relationship; and
  • the degree to which the services rendered are an integral part of the putative employer's business.
Though similar to the economic realities test, the IRS and the NLRB have their own tests as well.  What should one do to navigate this forest of varying and multi-factored tests?  Of course, my advice on this is to seek some professional advice.  You might be surprised that you qualify as an employee for one purpose but not another.


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