Are Your Workers Employees or Independent Contractors? The Answer May Surprise You!

Are Your Workers Employees or Independent Contractors?Owning a business is the American dream. It allows for independence, creativity, and entrepreneurial spirit. However, a lot of responsibility comes with that dream, including being current with the laws and regulations — both state and federal — that govern your relationships with your workers. One of the most common issues employers face is the proper classification of workers as employees or independent contractors.

You may choose to hire an “independent contractor” to avoid paying payroll taxes and benefits, such as healthcare. But even if you call your worker an independent contractor, and you both agree that he or she will work as an independent contractor, that may not be the way the law views the relationship.

The label has little to do with whether state and federal agencies will treat that person as an independent contractor. State and federal agencies almost all employ different fact-specific tests to determine whether a worker is classified correctly.

However, the tests are all aimed at discovering how much “direction and control” the employer exercises over the worker, to determine whether the worker is truly “independent.” If there is any doubt, the agencies will generally find that the worker is an employee. If you misclassified that employee, you may then be subject to penalties, back taxes, and fines, even if you in good faith classified the employee as an independent contractor.

Employee or Contractor? A Test

As an example of one of the tests employed, ORS 670.600, relied on by the Oregon Department of Revenue, provides that independent contractors must be:

  1. Free from direction and control, beyond the right of the service recipient to specify the desired result, and
  2. Licensed under ORS 671 or 701 (State Landscape Architect Board or Landscape Contractors Board and State Board of Architect Examiners or Construction Contractors Board) if licensure is required for the service, and
  3. Responsible for other licenses or certificates necessary to provide the service, and
  4. Customarily engaged in an “independently established business” (a separately defined phrase).

In short, if you’re considering hiring new workers for your business or have workers performing jobs for you that you are paying as independent contractors, contact me so that I may help you determine if you have classified them correctly. This may save you the penalties and fines associated with misclassification of a worker.

Be proactive in making sure you are in compliance with state and federal regulations concerning your workers. Doing this right now will save you time and money.

Dumas Law Group has law offices in Portland, Oregon and serves clients in Oregon, Washington, Idaho, and other states.

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