Maryland’s New Sanctions for Misclassifying Independent Contractors

The SC&H Group posted a blog post that share information about Maryland’s new sanctions on employers who misclassify employees as independent contractors. The blog post says:

Effective October 1, 2016, the Maryland General Assembly passed new sanctions on employers who misclassify workers. Among many effects, these sanctions will increase interest on overdue contributions and raise penalties for knowledgeable misclassification. Therefore, to ensure that organizations comply with these regulations, they should complete four key tasks:
1. Properly determine independent contractors
2. Understand Maryland’s penalties for misclassification
3. Understand additional potential federal consequences of misclassification
4. Properly file for independent contractors
1. Determining Your Independent Contractors
By law, all workers are employees unless they meet a test for independent contractor status. Status is determined by the relationship of the parties, not independent contractor agreements. For instance, independent contractors must be in business for themselves and actively manage and promote their business.
The Maryland Independent Contractor test uses the following three qualifications to evaluate whether an individual is an independent contractor.
The individual who performs the work is free from control and direction over its performance both in fact and under contract.
The individual is customarily engaged in an independent business or occupation of the same nature as that involved in the work.
The work is outside of the usual course of business of the person for whom the work is performed, or performed outside on any place of business of the person for whom the work is performed.
2. Understanding Maryland’s Penalties for Misclassification
If it is determined that a worker should be classified as an employee and not an independent contractor, the employer may face wage and hour taxes, liability for payment of unemployment workers compensation benefits, and liability under other laws that provide benefits to employees.
Employers that misclassify independent contractors may be ordered to pay unemployment contributions. And as a result of the new sanctions, employers will now also be assessed 2 percent interest if those contributions are not paid in full within 45 days of the order to make payment.
Further, if determined by the Maryland Secretary of Labor, Licensing and Regulation to have knowingly misclassified, employers will see the following penalties:
$5,000 per employee penalty for employers who knowingly misclassified workers as independent contractors
$10,000 per employee penalty for subsequent violations
$20,000 penalty for person(s) (attorneys, accountants, HR) who knowingly advised employers to misclassify
Moreover, misclassification determinations may also be reported to the Worker’s Compensation Commission, Insurance Administration, Division of Labor and Industry, and Comptroller.