Can I pay my cleaners as 1099 contractors in Massachusetts?
In Massachusetts, the answer is almost always no. If you run a cleaning company, the people who do the cleaning work for you will nearly always need to be W-2 employees, not 1099 contractors. This is probably the most common and costly mistake Massachusetts cleaning business owners make.
Massachusetts uses one of the strictest worker classification tests in the country, called the ABC test. Under this test, every worker is presumed to be an employee. The burden falls on you, the business owner, to prove all three prongs of the test. If you cannot prove even one of the three, the worker is an employee under Massachusetts law.
The three prongs require you to show that the worker is free from your control and direction, that the work is performed outside your company’s usual course of business, and that the worker has an independently established trade of the same nature.
For a cleaning company, the second prong is nearly impossible to pass. Your company’s usual course of business is cleaning. The cleaners you hire are performing cleaning work. The work they do is squarely within your usual course of business, not outside it. You cannot satisfy this requirement, which means those workers must be classified as employees.
This is not a gray area or a matter of how you structure the arrangement. The Massachusetts Attorney General has been clear that workers who perform the core service a company offers to customers cannot be treated as independent contractors under the ABC test.
The penalties for getting this wrong are severe. Massachusetts allows workers who were misclassified to recover triple damages. Back wages, unpaid overtime, and benefits owed can be multiplied by three. Add in unpaid payroll taxes, penalties, and interest from both the state and the IRS, and a classification mistake can become a business-ending liability.
What this means practically is that you need to set up proper payroll for your cleaning staff. That includes withholding income taxes, paying the employer portions of Social Security and Medicare, contributing to unemployment insurance, and carrying workers’ compensation coverage.
The one exception is if you subcontract to another legitimate cleaning business that operates independently, serves multiple clients, and truly runs its own operation. But an individual cleaner you bring in to work your accounts or your routes does not qualify.
If you need help getting worker classification and payroll set up correctly for your cleaning business, or if you have been paying workers as contractors and need to fix the situation, Simona Leppala at Smart Outsourced Solutions can help. As a CPA and Enrolled Agent, she provides small business bookkeeping services and payroll for cleaning businesses throughout Massachusetts and New England. Getting classification right from the start protects you from the serious risks that come with misclassification.
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