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Maine enacts uniform legal definition of “independent contractor”

lumber yard worker.jpgThis week, Maine began to use a new uniform legal definition for who is an “independent contractor” and who is an “employee.” This distinction is important for purposes of determining whether a worker is entitled to workers compensation, unemployment insurance, overtime pay, and other benefits. While employees are entitled to these benefits, independent contractors are not. “Under the old rules, a business could have a worker classified as an employee under worker’s comp but as an independent contractor for unemployment taxes,” said Maine Labor Commissioner Jeanne Paquette. “That made no sense, so the administration and many interested parties from all sides came to the table and worked out a better definition that both the Department of Labor and the Worker’s Compensation Board will apply consistently,” she explained.

Additionally, the new law imposes harsher penalties on employers who intentionally misclassify workers as independent contractors. According to Department of Labor spokesperson Julie Rabinowitz, an employer who misclassifies workers as independent contractors could now face a $20,000 fine from the Department of Labor and the Workers Compensation Board. This will help deter businesses from misclassifying workers in order to gain an unfair advantage against law abiding businesses that correctly classify workers as employees and provide them with legally required benefits like workers compensation insurance and overtime pay.

According to the Maine Department of Labor, the new criteria, effective December 31, 2012, that establish a worker as an independent contractor are as follows.

“Services performed by an individual for remuneration are considered to be employment subject to this chapter unless it is shown to the satisfaction of the agency that the individual is free from the essential direction and control of the employing unit, both under the individual’s contract of service and in fact, the employing unit proves that the individual meets all of the criteria in Section A and three (3) of the criteria in Section B.”

“Required Criteria (all criteria must be met)
1. The person has the essential right to control the means and progress of the work except as to final results;
2. The person is customarily engaged in an independently established trade, occupation, profession or business;
3. The person has the opportunity for profit and loss as a result of the services being performed for the other individual or entity;
4. The person hires and pays the person’s assistants, if any, and, to the extent such assistants are employees, supervises the details of the assistants’ work; and
5. The person makes the person’s services available to some client or customer community, even if the person’s right to do so is voluntarily not exercised or is temporarily restricted.”
“Disjunctive Criteria (at least three (3) of the following seven (7) criteria must be met)
1. The person has a substantive investment in the facilities, tools, instruments, materials and knowledge used by the person to complete the work;
2. The person is not required to work exclusively for the other individual or entity;
3. The person is responsible for satisfactory completion of the work and may be held contractually responsible for failure to complete the work;
4. The parties have a contract that defines the relationship and gives contractual rights in the event the contract is terminated by the other individual or entity prior to completion of the work;
5. Payment to the person is based on factors directly related to the work performed and not solely on the amount of time expended by the person;
6. The work is outside the usual course of business for which the service is performed; or
7. The person has been determined to be an independent contractor by the federal Internal Revenue Service.”