Maryland Independent Contractor Agreement Template

Introduction

Key Things to Know

1. 1

   The Maryland Workplace Fraud Act reaches two industries and no others. Section 3-902 provides that the subtitle applies only to construction services and landscaping services. Both terms are defined broadly in Section 3-901, with construction covering building, reconstructing, improving, enlarging, painting, altering, maintaining, and repairing, and landscaping covering garden maintenance, lawn care, sod laying, turf installation, and ornamental pruning and removal. Engagements outside those two industries are governed by the ordinary tests, not by the Act.

2. 2

   Inside those industries, work performed for remuneration is presumed to create an employer-employee relationship under Section 3-903(c)(1). The employer rebuts the presumption in one of two ways: by showing the individual is an exempt person under the six-part definition in Section 3-901(d), or by proving three elements, freedom from control both in fact and under the contract, that the individual customarily is engaged in an independent business or occupation of the same nature as the work, and that the work is outside the usual course of business or performed outside any place of business of the person for whom it is done.

3. 3

   That last element is disjunctive, which makes Maryland materially easier for a hiring business than a strict ABC state. Section 3-903(c)(1)(ii)3 uses or between the outside-the-usual-course branch and the outside-any-place-of-business branch, so proving either one satisfies it. Section 3-901(g) helps here too: place of business means the office or headquarters and expressly excludes a work site at which the employer has been contracted to perform services.

4. 4

   Section 3-903.1 is where the document becomes an element of the test. The presumption does not apply only if the employer produces for the Commissioner a written contract signed by the employer and the business entity that describes the nature of the work and the remuneration and includes an acknowledgment by the business entity of its obligations to withhold, report, and remit payroll taxes for its own employees, to pay unemployment insurance taxes for them, and to maintain workers' compensation insurance, plus an affidavit of availability to other businesses, a current certificate of status from the State Department of Assessments and Taxation, and proof of all required occupational licenses.

5. 5

   A second, separate obligation is the notice. Section 3-914(b) requires an employer to give each individual classified as an independent contractor or exempt person written notice of the classification at the time the individual is hired. Section 3-914(c) requires the notice to explain the implications of that classification and to be provided in English and Spanish, and Section 3-914(d) directs the Commissioner to prescribe its contents and form. Section 3-914(e) authorizes a civil penalty of up to $50 per day for each day the notice is not provided, and the state labor department also expects the notice to be posted at every jobsite and at the place of business.

6. 6

   Unemployment insurance and workers' compensation run on different tests, so one outcome does not carry the other. Section 8-201(a) presumes covered employment, and Section 8-201(b) puts the burden on the employing unit to establish independent contractor status under the three-prong test in Section 8-205, whose third prong is disjunctive in the same way. Workers' compensation takes the opposite route: Section 9-202(a) presumes covered employee status and Section 9-202(c) requires the employer to establish contractor status in accordance with the common law, which the Supreme Court of Maryland restated in Tyson Farms, Inc. v. Uninsured Employers' Fund, 471 Md. 386 (2020) as a five-factor inquiry in which control is the decisive factor.

7. 7

   The paperwork shifts exposure, it does not settle the facts. Outside construction and landscaping, wage claims under the Maryland Wage and Hour Law and the Wage Payment and Collection Law turn on economic reality, and the Maryland Department of Labor states that a signed agreement declaring that a worker is an independent contractor is not, by itself, enough to establish that fact, and that if two individuals in fact stand in the relation of employer and employee, it is irrelevant that the worker has agreed to be called an independent contractor. Section 9-402.1 backs that with civil penalties of up to $5,000 for a knowing misclassification and up to $20,000 against a person who knowingly advises an employer to violate the section.

Maryland Requirements for Independent Contractor Agreement

• Workplace Fraud Act Applies Only to Construction and Landscaping (Lab. & Empl. 3-902)

  Md. Code Ann., Lab. & Empl. 3-902 limits Title 3, Subtitle 9 to construction services and landscaping services. Section 3-901 defines both broadly, with construction covering building, reconstructing, improving, enlarging, painting, altering, maintaining, and repairing, and landscaping covering garden maintenance, lawn care, sod laying, turf installation, and ornamental bush and tree pruning and removal. Engagements outside those industries do not carry the Act's presumption, contract mandate, or notice duty.

• Presumption of Employment and the Two Rebuttal Routes (Lab. & Empl. 3-903(c))

  Within the covered industries, work performed for remuneration is presumed to create an employer-employee relationship unless the individual is an exempt person or the employer proves three elements: freedom from control both in fact and under the contract, that the individual customarily is engaged in an independent business or occupation of the same nature as the work, and that the work is outside the usual course of business or performed outside any place of business of the person for whom it is done. The presumption applies for purposes of enforcement of that subtitle only.

• Exempt Person Definition (Lab. & Empl. 3-901(d))

  The alternative rebuttal route is exempt person status, a six-part definition requiring that the individual perform services in a personal capacity, employ no one other than a spouse, child, or parent, be free from direction and control, furnish its own tools and equipment, operate a business inseparable from the individual for tax, profit, and liability purposes with complete control over management and operations, and have a continuing right to serve multiple entities.

• Prescribed-Terms Written Contract as the Condition of Relief (Lab. & Empl. 3-903.1)

  The employment presumption does not apply if the employer produces a written contract, signed by the employer and the business entity, that describes the nature of the work and the remuneration and includes an acknowledgment by the business entity of its obligations to withhold, report, and remit payroll taxes for all its employees, to pay unemployment insurance taxes for them, and to maintain workers' compensation insurance, together with an affidavit of availability to other business entities, a current State Department of Assessments and Taxation certificate of status, proof of required occupational licenses, and proof that the Section 3-914 notice was given.

• Bilingual Written Notice at Hire (Lab. & Empl. 3-914(b) through (e))

  An employer shall provide each individual classified as an independent contractor or exempt person with written notice of the classification at the time the individual is hired. The notice must explain the implications of the classification and be provided in English and Spanish, on the form prescribed by the Commissioner of Labor and Industry, and the state labor department expects it to be posted at every jobsite and at the place of business. A civil penalty of up to $50 per day is authorized for each day the notice is not provided.

• Three-Year Classification Records (Lab. & Empl. 3-914(a))

  Employers must keep three years of records covering the name, address, occupation, and classification of each employee or independent contractor, the rate or method of pay, amounts paid each pay period, and hours worked each day and workweek, and for all individuals not classified as employees, evidence that each individual is an exempt person or an independent contractor or its employee. Keep the signed contract, affidavit, certificate of status, and license proof with those records.

• Unemployment Insurance ABC Test With a Disjunctive Third Prong (Lab. & Empl. 8-201, 8-205)

  Section 8-201(a) presumes covered employment for work performed for wages or under any written or oral, express or implied contract of hire, and Section 8-201(b) puts the burden on the employing unit. Section 8-205(a) requires freedom from control both in fact and under the contract, that the individual customarily is engaged in an independent business or occupation of the same nature, and that the work is outside the usual course of business or performed outside any place of business of the person for whom it is done. The or between the last two branches makes that prong disjunctive.

• Workers' Compensation Runs on the Common Law, Not ABC (Lab. & Empl. 9-202)

  Section 9-202(a) presumes that an individual in the service of an employer under an express or implied contract of apprenticeship or hire is a covered employee, and Section 9-202(c) requires the employer to establish independent contractor status in accordance with the common law or a specific statutory exemption. Tyson Farms, Inc. v. Uninsured Employers' Fund, 471 Md. 386 (2020) restates the five-factor test covering the power to select and hire, payment of wages, the power to discharge, the power to control conduct, and whether the work is part of the employer's regular business, with control as the decisive factor.

• Misclassification Penalties and Agency Referrals (Lab. & Empl. 9-402.1 and 3-915)

  Section 9-402.1(b) provides that an employer may not fail to properly classify an individual as an employee. Subsection (d) authorizes a civil penalty of up to $5,000 for a knowing misclassification, subsection (e) up to $20,000 against a person who knowingly advises an employer to violate the section, and subsection (f) doubled penalties for repeat knowing violations. Subsection (h) requires the Commission to notify the unemployment insurance office, the Division of Labor and Industry, the insurer, the Insurance Administration, and the Comptroller. Aiding and abetting under Section 3-915 carries penalties of up to $20,000.