When is it safe to use independent contractors in Massachusetts?

For a small business, hiring employees can seem daunting, with payroll, tax and other compliance issues taking time from your busy schedule. It is tempting to instead use part-time independent contractors, pay them in “1099 income” and shift the tax and administration burden off your shoulders. Be careful: Massachusetts now has some of the country’s tightest employment classification laws, and interprets them strictly. You can get in much more trouble than it’s worth by misclassifying an employee as an independent contractor, and a simple “Independent Contractor Agreement” is often not enough to protect you.

Note: As always, this article is provided for general education only and to make the reader aware of the issues. If you need advice on your own or your business’s situation, consult a lawyer. This article pertains to Massachusetts law; other jurisdictions may have very different laws on independent contractors.

One common misconception is that the use of an independent contractor agreement is always sufficient to give your hire independent contractor status. If only it were that easy! An independent contractor agreement is only one piece of the puzzle. It will have no effect if the hire is not in a lawfully classifiable independent contractor position.

How do you know whether your hire’s independent contractor classification is lawful? Unfortunately, as in many areas of law, you don’t know for sure until the issue “hits the fan.” Many businesses could go on for years using misclassified workers and not realize the mistake until a complaint or other event results in a state agency or court needing to decide the issue, so instead of trying to write out a bright-line rule I will tell you the criteria that a Massachusetts judge would apply when deciding whether a worker is truly an independent contractor.

There are three criteria. A worker is not lawfully classified as an independent contractor unless all three prongs are met. If the answer to any of these questions is “no,” the worker must be an employee, not an independent contractor:*

  1. Does the worker have freedom from control by the employer? This means that the employer may tell the independent contractor what needs to be done and by what deadline, but should not place any unnecessary requirements on the manner in which the tasks will be done, such as where, during what hours, and by what methods. If the worker submits a time card and is paid by the hour, that will also weigh against independent contractor status. Usually, independent contractors should be paid by the task, not by the hour.
  2. Is the worker performing a service that is outside the employer’s usual course of business? This requires considering the employer’s line of business, and asking whether the independent contractor is doing something that is part of that business or would ordinarily be done by a separate company. If the business is a shoe store, it is unlikely that it would get away with classifying its shoe salespeople as independent contractors. But the graphic designer it hires to do its print ads? If handled properly, that can usually be an independent contractor. Software developers working for a software company? Probably an employee. Videographer hired to prepare web ads before the software company’s product launch? Usually an independent contractor.
  3. Is the worker engaging in an independently established trade or business? This sounds a lot like number 2, but what it is asking is whether the worker is a separate business entitled to act like one. Merely forming a separate LLC or Corporation is insufficient. Is the worker free to take on other projects for other companies, so long as they don’t conflict? If the worker is (or is in a line of work where traditionally he or she would be) advertising the services he or she is performing for the employer to other potential employers, scheduling time for the multiple projects and doing them independently, this prong will be satisfied.

Again, if the answer to any of these questions is no, you must sign the worker on as an employee, not as an independent contractor. Failing to do so could result in your company inadvertently violating a number of state laws, including (but not limited to) payroll record keeping rules, payroll tax withholding requirements, wage and hour law, minimum wage law, laws requiring overtime pay, and worker’s compensation laws. Companies found in violation of these laws could receive stiff fines and be prohibited from working on public contracts for a period of time.

*There are a few specific exceptions to this rule that are specified in Massachusetts statutes. For example, real estate agents usually sign on to a single company and would certainly appear to be employees under this law, but there is a separate law regulating real estate companies that specifically allows them to use independent contractors as agents. Taxi drivers, lawyers and a few other professions receive similar treatment.

A Few Simple Rules for Drones

Note: I wrote a blog post some time ago about rules for recreational drone users, and haven’t revisited the subject since. But apparently, based on some pretty off the wall communications I’ve received, this outdated post caused some confusion when an unidentified person tried to use it for a purpose for which it was not intended. Because of this, and because some of the information in the post has been made obsolete by newer rules, I’ve taken the post down.

Upcoming Event: Business Law Primer in Cambridge, Weds., Jan. 13

On Wednesday, 1/13 at 6:00 PM I will be giving a presentation on business law for startups in Central Square. The location is the first floor of Workbar, 45 Prospect St. (a block from the Red Line stop). Workbar members and nonmembers welcome.

I will cover the most common topics my startup business clients ask about, including pros and cons of different business entity types (LLC, S-Corp, Partnership, etc.), how to work with (or as) an independent contractor and how intellectual property assets are identified, categorized and protected.

Registration is free. Please register at the Eventbrite page here so we can get a head count.

Register Your Drone Now!

If you’re like me – and by that I mean a photography enthusiast who gets spammed by every retailer of camera stuff out there – you’ll have noticed that the market for civilian drones has really taken off this year. If you haven’t seen these things yet, they’re the small helicopters, usually with cameras mounted, that many photographers and videographers are now using to capture stunning aerial footage and annoy visitors at monuments and tourist attractions.

Unfortunately they have also featured prominently in such recent news gems as “Kentucky Man Shoots Low Flying Drone With a Shotgun,” “Drone Just Barely Misses Austrian Skier” and “Close Calls Between Drones and Planes on the Rise.” Unfortunately, problems are to be expected, since there is no sort of training requirement to buy or use a drone recreationally, but now the inevitable legal backlash is here in the form of new federal regulations.

The one that most concerns most recreational users is registration. All drone owners in the US must register with the FAA and mark their drones with their registration number. Starting February 19th, any unregistered drone use could result in a very stiff fine.

The FAA operates a drone registration web site, and charges $5 per three years. Anybody registering before January 20th will receive a refund of the $5 fee. Registration is per user, not per drone. If you have more than one drone, you only need to go through the registration once and receive a registration number that you can put on all of your drones. If you don’t have a drone but plan to get one, register now to save the $5.

This applies only to drones that weight 250 grams or more, so the smallest toy helicopters do not require registration. It also applies to recreational use only. Commercial users have a more complex registration process and require certifications for the user.

Links:

FAA Drone Registration Web Site
Kentucky Man Shoots Low Flying Drone With a Shotgun
Drone Just Barely Misses Austrian Skier
Close Calls Between Drones and Planes on the Rise

Rental law: What fees a landlord may charge, and what to do with the funds.

In the past few weeks I’ve seen a surprising number – at least half a dozen – of instances of Massachusetts landlords violating state law by either charging a prohibited fee, or failing to correctly account for a tenant’s security deposit. The rules here are firm but straightforward, so here is a short overview that I hope will prove informative to landlords and tenants alike.

As usual, this overview applies in Massachusetts only, and is for educational purposes, not legal advise. If you have any questions or want to know how the law would apply in any particular situation, please contact me directly at andrew@andrewlynnlaw.com or through one of the contact forms on this site.

Fees a landlord may charge

First: While processing a prospective tenant’s application, a landlord or a landlord’s agent may require a credit check, and may charge a reasonable fee to cover that expense. Even if the applicant’s real estate agent has already run a credit check, the landlord is not required to accept it and may require an additional check.

Second: Once an application is accepted, upon execution of a lease a landlord may charge:

  1. First month’s rent.
  2. Last month’s rent.
  3. A reasonable fee to cover the actual cost of keys and changing locks.
  4. A security deposit, which may not be more than one month’s rent.

Third: Each month the landlord may require payment of rent, except of course the first and last months if those rents have already been paid.

That’s it!

No other fees or deposits are allowed. There is no “rental deposit” permitted under Massachusetts law, nor is there a “pet deposit”. There is no facility fee, and fees for parking or gym use may only be charged if those are optional services that the tenant is free to not accept. If the landlord wants the tenant to pay for any of these things, they must be rolled into the monthly rent. Don’t try to get too clever on this either. For example, doubling the first or last month’s rent to cover extra expenses doesn’t work. The rent must be the same each month, with a few exceptions (such as offering free months as an incentive to sign a multiyear lease, which is something that some larger buildings have offered lately).

What to do with the funds

Note: This information is not complete: for example, the explanations of paperwork a landlord gives a tenant are an outline only, because the law includes redundancies and specific required language that would make this post excessively long.

  1. The landlord may keep the first month’s rent.
  2. The landlord must give the tenant a receipt for the last month’s rent and must deposit that rent in an interest-bearing account. The landlord must keep an accounting of the interest earned, and at the end of the lease (or the end of each year of the lease, if the lease is for more than one year) must send the interest to the tenant.
  3. The landlord must use the lock and key fee, if any, to pay for locks and keys.
  4. The landlord must deposit the security deposit into a separate, segregated, interest-bearing account, and provide the tenant a receipt. Again, the interest will go to the tenant.

Security deposit rules

The security deposit is only for repairing damage caused by the tenant, so if the landlord charges one the tenant must be given a statement of the initial condition of the apartment – and the tenant may also give the landlord a list of any damage that is present at the start of the lease, to avoid being charged for it later. If the landlord uses security deposit funds to pay for any repairs, the landlord must keep records of the work done and the amount paid.

Any security deposit funds not used to pay for repairs must be refunded to the tenant within 30 days of end of lease. That’s a firm requirement. Landlords: Don’t use security deposits to pay for cleaning, or for regular maintenance and upkeep, or to make up for any unpaid rent! If there is unpaid rent, feel free to write the tenant a bill but send the security deposit back anyway. If the tenant says “I don’t want to write a check, you can just keep my deposit instead,” you reply “Sorry but no, I can’t do that.”

Stay out of trouble

A majority of the landlord-tenant disputes I see relate to violations of these rules. Follow them strictly, and you will avoid a lot of expensive, time- and resource-consuming trouble.

The Massachusetts retainage law update is now in effect

A reminder to all of you with construction projects in progress or planned in the short term.

Note: This article is for your information only. It is not legal advice. This information applies only to projects in Massachusetts. If you have specific questions, please send me a message at Andrew@AndrewLynnLaw.com or call 617-702-4045.

The new Massachusetts law on subcontractor retainage the I wrote about earlier is in effect, as of November 6th. Some of the key points:

Caps on retainage: Total retainage is now capped at 5% of the payment due. There are also specific caps for specific deficiencies, of example 2.5% of the contract value for incomplete document deliverables.

Payment timing: There are new timing requirements. For example, retainage most now be invoiced within 60 days following substantial completion, payable within 30 days of invoice receipt, with an allowance of 7 days per level of subcontract.

Substantial completion timing: The prime contractor must give notice of substantial completion within 14 days of actually achieving the substantial completion milestones.

Punchiest timing: The owner must submit the punchiest to the prime contractor(s) within 14 days of acceptance of substantial completion. The prime must provide the punchiest to its subcontractors within 21 days of acceptance of substantial completion.

Remember that these new requirements are statutory, so update your contracts.

Simple estate planning for any age

If you’re like me – too young to be planning retirement – “estate planning” sounds like something grandparents do. That’s true, to a certain point. For most of us, nursing home expenses and estate taxes shouldn’t mean much to us. But there are some simple, inexpensive moves we can make right now that have  lot of potential upside. If you’re married or have kids, own a home or a business, or even if it’s just you, you can make sure that you, your family and your interests are protected.

  1. What happens if you become disabled? This can happen to anybody, at any age, through no fault of their own. Instead of leaving it to chance, or occasionally the courts, a power of attorney, medical proxy and statement of intent, all written in advance, let you decide in advance what happens and who you trust to make important decisions.
  2. What happens to your assets if you get hit by a bus? A simple will, clearly written and consistent with the latest state laws, lets you make those decisions and saves your relatives a lot of time and expense. (Massachusetts overhauled the laws two years ago and a lot of out-of-date forms are floating around.)
  3. Is your home correctly titled? If you own a home, or if you’re planning on buying one, Massachusetts has some simple steps you can take to protect your home from lawsuits.

These simple estate plans only require a few documents and one or two meetings, and the flat fee pricing is affordable. Contact Andrew at Andrew@AndrewLynnLaw.com or 617-702-4045, or use the contact form below, to find out more or to get started.

This web site is attorney advertising. Prior results do not guarantee a similar outcome. Accepting Massachusetts clients only.

Architects and designers: Enforcing payment using mechanic’s liens

Today on ArchitectureLaw.net:

A Massachusetts law passed in 2010 allows architects and design professionals to use mechanic’s liens – traditionally the domain of contractors and building material suppliers – to enforce payment. It’s one straightforward way to gain leverage if you have a delinquent payment dispute, but there are deadlines and the requirements include a written contract. Know your rights so that you do not lose access to this valuable tool.

Read the article here: “Mechanic’s Liens for Architects” and contact me at Andrew@AndrewLynnLaw.com for more information on mechanic’s liens and any other questions you have on law and contracts for design professions.