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.
Employment standard defining employee vs. independent contractor
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.