FAQ – INDEPENDENT CONTRACTORS
New definition of “Independent Contractor” for Workers’ Compensation Act
Beginning January 1, 2013 there is a new law in effect defining who qualifies as an independent contractor for purposes of workers’ compensation.
An important goal of the new law is to make it easier to determine who is, and who is not, an employee.
For the first time, all workers will be presumed to be employees for purposes of workers’ compensation. The employing entity will be responsible for proving an individual performing services for remuneration is not an employee.
The new law creates a uniform definition of independent contractor for the Workers’ Compensation Act and the Maine Department of Labor (MDOL). The Board’s predetermination process remains in effect.
It is important to remember that predeterminations (except for landowners who hire wood harvesters) are “rebuttable.” This means that the Board can still find that the person is an employee in a later proceeding before the Board. Also, MDOL cannot rely on a Board predetermination as evidence of employment status for proceedings with MDOL.
Individuals hiring and those seeking work as independent contractors should become familiar with their rights and responsibilities under Maine law to make informed decisions and avoid future problems.
Who is an independent contractor?
Independent contractors are individuals who perform services for remuneration (pay or some other form of consideration) under a verbal or written contract, but who are not under the essential control or superintendence of the other person, both under the contract and in fact. The worker must also meet specific criteria (see What does the Board consider below).
If I have a written contract of service does that mean I am an independent contractor?
The existence of a contract—written or verbal—is one of the factors the Board uses to determine whether a worker is an independent contractor. However, the Board is required to consider additional factors, and having a written contract will not, by itself, make an individual an independent contractor.
Does the Board define independent contractor the same as the MDOL, MRS or IRS?
The new law creates a uniform definition of independent contractor for the Board and MDOL only. The Maine and Internal Revenue Services could not be included due to differences in federal law. However, the new definition contains tests used by the IRS, so individuals determined to be independent contractors for workers’ compensation or unemployment will likely be treated as independent contractors for tax purposes. If you have questions you should contact a tax professional.
Is an independent contractor required to have workers’ compensation insurance?
No, however an independent contractor is required to have workers’ compensation insurance for any employees hired by the independent contractor. Further information about who is and is not required to have coverage is available at: http://www.maine.gov/pfr/insurance/consumer/workcomp.htm
Who determines whether a worker is an independent contractor?
The Maine Workers’ Compensation Board determines whether a person is an independent contractor for purposes of maintaining mandatory workers’ compensation insurance and/or claims by injured workers.
Can a worker and the employing entity agree the worker is an independent contractor?
No. The Board will decide if the worker meets the requirements to be an independent contractor in a claim for benefits or during an investigation into whether an employer should have workers’ compensation insurance coverage. A written contract or verbal agreement that a worker is an independent contractor will be considered but does not control a final decision by the Board.
How can I find out whether I am an independent contractor?
Anyone may request that the Workers’ Compensation Board make a “predetermination” of their employment status; that is whether they likely are or are not an independent contractor.
Applications for predetermination of Independent Contractor Status are available on the Board’s website http://www.maine.gov/wcb/departments/Coverage/independetcontractor.htm (Maine Workers' Compensation Board) or by contacting Lisa Bachelder at (207) 287-7071 or 1-888-801-9087.
Does a predetermination apply for any work I perform?
Generally yes (with the exception of landowners who hire wood harvesters). However a predetermination is rebuttable (meaning the Board can still find that the person is an employee in a later proceeding). If there is a claim for benefits or investigation regarding coverage, the individual performing services is presumed to be an employee and the employer has the burden of proving an individual is an independent contractor both under the contract of hire and under the actual specifics of the work performed.
What does the Board consider when deciding whether a person is an independent contractor?
A person who performs services for remuneration is presumed to be an employee unless the employing unit proves that the person is free from the essential direction and control of the employing unit, both under the person's contract of service and in fact and the person meets specific criteria. In order for a person to be an independent contractor they must meet the test in 39-A M.R.S.A. § 102(13-A). Pursuant to this test:
A. The following criteria must be met:
(1) The person has the essential right to control the means and progress of the work ex cept 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; and
B. At least 3 of the following 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.
For more information regarding the INDEPENDENT CONTRACTORS & WORKERS’ COMPENSATION, contact Lisa Bachelder at (207) 287-7071.