Independent Contractor Classification in Maryland: A Maryland Business Law Attorney’s Guide to the Workplace Fraud Act and Beyond

A Maryland business owner who pays a “consultant” $5,000 a month, dictates her hours, supplies her laptop, and tells her which projects to work on does not have an independent contractor. She has an employee with the wrong tax form. Maryland’s classification regime is stricter than the federal common-law test, and the Maryland Department of Labor and the Attorney General have spent the last several years building enforcement that produces real penalties for misclassification. A Maryland business law attorney auditing a small business’s 1099 roster in 2026 typically finds that the founder modeled the relationships on what other companies are doing, the controlling Maryland tests do not match the federal framework, and the misclassification exposure is quietly accruing on the books until a complaint surfaces.

Maryland uses different tests for different statutes

The first thing to get straight is that Maryland does not have a single, uniform classification test. Different statutes apply different standards, and a worker can be an employee under one law and a contractor under another. Four frameworks matter most:

• The Maryland Workplace Fraud Act, codified at Md. Code Ann., Lab. & Empl. § 3-901 et seq., which applies to the construction and landscaping industries and uses a stringent ABC test
• The Maryland Wage Payment and Collection Law, which uses an economic realities and right-to-control analysis with significant ABC test overlap
• The Maryland Unemployment Insurance Law, which adopts the ABC test under Md. Code Ann., Lab. & Empl. § 8-205
• The Internal Revenue Service common-law test for federal tax purposes, which differs from any Maryland framework

A clean classification has to survive each test that applies to the relationship. The Workplace Fraud Act is the most aggressive of the four, and its enforcement scheme is the most well-developed.

The ABC test for construction and landscaping

Under the Workplace Fraud Act, every worker performing construction or landscaping services in Maryland is presumed to be an employee. The business can rebut the presumption only by proving one of four exceptions:

• The worker is an “exempt person” who operates an independent business as a sole proprietor with no employees other than a parent, child, or spouse
• The worker satisfies all three prongs of the ABC test
• The worker is a registered business entity in good standing with SDAT, holds required occupational licenses, and provides an affidavit of independence
• Other documentation demonstrates the contractual relationship and the worker’s status

The ABC test itself is conjunctive. The business must prove all three:

• A: The worker is free from direction and control over the manner and means by which the work is performed, both under the contract and in fact
• B: The worker is engaged in an independent business or occupation of the same nature as the work being performed
• C: The work is performed outside the usual course of the company’s business, or the work is performed outside any place of business of the company

Prong C ends most relationships. A drywall installer working for a drywall company is not outside the usual course of business of the company. The same logic catches a landscaper working for a landscaping firm, a plumber working for a plumbing contractor, and a framer working for a general contractor.

What construction and landscaping employers must do affirmatively

The Workplace Fraud Act imposes specific compliance obligations on construction and landscaping businesses beyond the classification test itself:

• Provide written notice to every individual classified as an independent contractor or exempt person, explaining the classification and what it means
• Post a workplace notice (provided by Maryland Department of Labor) in both English and Spanish
• Maintain copies of licenses and registrations provided by anyone classified as an independent contractor or exempt person
• Use Maryland Department of Labor notice templates rather than self-drafted versions

Failure to provide the notice is a separate violation even when the underlying classification is correct.

Outside construction and landscaping

For non-construction, non-landscaping Maryland employers (consulting firms, tech startups, retail, professional services, restaurants), the Workplace Fraud Act does not apply directly. The controlling tests under Maryland’s other statutes blend the economic realities framework with common-law right-to-control factors. The Maryland Court of Appeals has signaled in unemployment insurance and wage-hour cases that the analysis overlaps significantly with the ABC test, particularly on the question of whether the worker’s services are integral to the company’s business.

The practical effect for most non-construction Maryland employers is similar to the ABC analysis: the more control the company exerts over how, when, and where the work is done, the more the contractor relationship looks like an employee relationship, and the more the work is core to the business, the harder the contractor classification becomes to defend.

What a Maryland Business Law Attorney looks for in a 1099 audit

A real-world audit of a Maryland employer’s 1099 roster usually focuses on:

• Whether the contractor sets her own schedule or works hours the company dictates
• Whether the contractor uses her own equipment, software, and tools or the company supplies them
• Whether the contractor markets services to other clients or works exclusively for this company
• Whether the contractor has a registered business entity, EIN, and business insurance
• Whether the work is the same as what employees of the company do
• Whether the engagement is open-ended or tied to defined project deliverables
• Whether there is a written services agreement describing the relationship as contractor work
• Whether 1099 payments are processed through accounts payable rather than payroll
• Whether the contractor has a company email address, business cards, or appears in company directories

No single factor decides. The pattern across factors usually does.

Enforcement consequences

Maryland’s enforcement playbook is well established. A misclassification finding by the Maryland Department of Labor can produce:

• Back wages including unpaid minimum wage and overtime under the Maryland Wage and Hour Law
• Civil penalties under the Workplace Fraud Act up to $5,000 per violation
• Up to triple damages under the Maryland Wage Payment and Collection Law for unpaid wages
• Unpaid unemployment insurance contributions plus interest
• Reimbursement to the State for unpaid workers’ compensation premiums
• Attorney’s fees and costs
• 45-day cure window to pay restitution and reclassify workers before additional civil penalties accrue

The Maryland Attorney General’s Office and the Maryland Department of Labor coordinate on misclassification cases, particularly in construction. Enforcement priorities in recent years have focused on labor brokers, residential and commercial construction subcontractors, and landscaping operations that pay in cash.

Practical structural moves for a defensible 1099 relationship

Steps that strengthen contractor classification:

• Require the contractor to operate through a registered Maryland business entity (LLC or corporation) with an EIN
• Use a written services agreement defining specific deliverables, project scope, and term
• Avoid dictating work hours, location, or methodology beyond what is necessary for coordination
• Require the contractor to invoice on the contractor’s own letterhead through accounts payable
• Confirm the contractor carries business insurance, including general liability and workers’ comp where applicable
• Document that the contractor has other clients or actively markets services
• Avoid issuing the contractor a company email address, business cards, or directory listing
• Ensure the work is genuinely outside the company’s core business, not just labeled that way
• For construction and landscaping, provide the required Maryland Department of Labor notice in English and Spanish

Bottom line

Maryland’s misclassification framework reaches further than federal common law, the Workplace Fraud Act gives construction and landscaping employers a strict ABC test with separate notice obligations, and enforcement is active enough that misclassification exposure rarely stays hidden indefinitely. A consultation with a Maryland business law attorney can audit existing 1099 relationships against each applicable test in one sitting and flag the engagements that need to be restructured or converted to W-2. Useful background reading: the Maryland Department of Labor’s Worker Classification Protection page at labor.maryland.gov and the statutory text at mgaleg.maryland.gov. Internal pages worth pairing with this post include a Maryland employment compliance checklist, an SB 525 pay transparency guide, and a fractional general counsel overview.