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Worker Misclassification - Understanding the Law

What is the difference between an employee and independent contractor?

State law presumes a worker is an employee unless the business or person who does the hiring can demonstrate otherwise.

Although each employment situation may be unique, state law looks at the amount of direction or control the worker has in their work. Workers performing services for a business or an individual who controls the work to be done
and how it will be done are typically considered to be employees under Maine law.

The employment status of that worker as an employee or an independent contractor affects who is responsible for paying employment taxes and withholdings, liability for workers compensation and unemployment insurance
coverage, and applicablity of labor laws.

Maine law establishes the standards used by the Maine Department of Labor and the Maine Workers’ Compensation Board to determine which workers are independent contractors. Maine Revenue Services follows the same standards as the Internal Revenue Service.

State and federal law, not contractural agreements, determine which workers can be classified as independent contractors.

Worker Misclassification is Illegal

The practice is illegal because it often leads to employers avoiding required workers’ compensation insurance, unemployment coverage, or other employer paid taxes and withholdings. There are serious consequences for employers that misclassify workers, including:

• tax penalties and interest;
• labor law and safety violations;
• back unemployment insurance premiums; and
• costly lawsuits if a worker is injured on the job.

General Characteristics of Employees and Independent Contractors

Independent Contractor Free from direction and control Has necessary skills and training to complete job Has a business location Performs services for multiple customers Sets own hours Determines own price for contracted services Not eligible for employee benefits Provides equipment and tools used to complete job Supplies materials needed to do job Personally liable for errors and/or accidents Files self-employment taxes Has right to hire and fire workers Must legally complete each contract

Employee Means and manner of work are (or can be) controlled by employer May be trained by employer to perform job May work at employer’s business location Works for one employer, may serve that employer’s customers Hours set by employer Accepts wage, salary, or commission determined by the employer Employer may provide and control equipment and tools Employer may purchase materials and supplies Employer liable for employee errors and/or accidents Is hired and can be fired by employer May quit working for an employer at any time

 

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