Independent Contractor Legal Update

If you hire workers as Independent Contractors you need to be aware of a significant change in Maine tax law. The Maine Legislature has clarified the definition of an independent contractor and if you misclassify a worker as a contractor when they fit the definition of a employee, then you could face a fine of up to $10,000 but in no event will the fine be less than $2,000.  

Here are the requirements according to the new state law:

1. The individual must have the right to control the means and progress of the work except as to final results;
2. The individual must customarily be engaged in an independently established trade, occupation, profession or business;
3. The individual must have the opportunity for profit and loss as a result of the services being performed for the other individuals or entities;
4. The individual hires and pays the individual’s assistants, if any, and, to the extent such assistants are employees, supervises the details of the assistants’ work;
5. The individual must make his services available to others in the  community even if the individual’s right to do so is voluntarily not exercised or is temporarily restricted. 

In addition to the five required characteristics noted above, at least three of the following seven requirements must also be met:

1. The individual has a substantive investment in the facilities, tools, instruments, materials and knowledge used to complete their work;
2. The individual is not required to work exclusively for one individual or entity;
3. The individual is responsible for satisfactory completion of the work and may be held contractually responsible for the failure to complete the work;
4. The parties have a written contract that defines the relationship and gives contractual rights in the event the contract is terminated prior to completion of the work;
5. Payment to the individual is based on factors directly related to the work performed and not solely on the amount of time expended by the individual;
6. The work is outside the usual course of business for which the service is performed;
7. The individual has been determined to be an independent contractor by the IRS. 

Take this change in the law seriously and be prepared for potential audits by the Maine Revenue Service with either a standard Independent Contractor Agreement or a customized agreement for your business category. If you have any questions or concerns call us for assistance in complying with the new laws.