Whether you are an employer looking to hire someone or someone looking for work, the classification of a person as an “employee” or an “independent contractor” is extremely important for practical, cost, and liability reasons. In addition, most legal protections afforded to employees do not apply to independent contractors.
In general, employees are considered to be workers solely dependent upon a business for all economic compensation. In contrast, people that operate their own independent businesses and contract to do a project or service for another person are generally considered to be independent contractors. In practice, the substance of this working relationship governs over its purported form. Therefore, it’s not up to the parties to just use a label to indicate the relationship. Classification often becomes a case of apples and oranges.
Oregon and federal regulatory and taxing authorities use similar, but different, legal tests to determine the “economic realities” and the degree of interdependence between the parties to classify. Some considerations are: the extent to which the work performed is an integral part of the employer’s business, the degree of control and employer has over the means, tools, and independence of the contractor/employee, the permanency of the relationship, the amount of direction and control exerted over the worker by the employer, the skill and initiative required to perform the work, who is responsible to provide licensing or certificates needed to perform the job, whether the contractor has an “independently established business”, the degree to which the worker’s opportunity for profit and loss is determined by the employer or by her own efforts, hiring and firing authority, the extent of relative investments of the worker and alleged employer, etc. You can learn more here: https://www.oregon.gov/ic/independent/Pages/default.aspx
In Oregon, the Department of Revenue, the Employment Department, the Construction Contractors Board, and the Landscape Contractors Board all weigh similar considerations slightly differently in making classification determinations. The IRS also has its own rules. Learn more here: https://www.oregon.gov/ic/Compliance-and-the-law/Pages/laws.aspx &
Often times, an employer seeks to classify workers as independent contractors to avoid related legal protections and liabilities for employees and to avoid paying related taxes, insurance, and mandatory wages. However, this effort can be very short-sighted and bring very significant future risk to a business.
What if a worker is classified incorrectly? If a business incorrectly classifies an employee as an independent contractor, it may be responsible for paying unpaid wages, overtime wages, taxes, insurance premiums, potential penalties and interest. These costs increase with time and penalties. Therefore, it pays for an employer to be proactive if it makes and honest and reasonable classification mistake. In addition, these matters may be treated differently among the various regulatory and taxing authorities, so please get professional help if you find yourself in this problematic situation. Excellent information about taking corrective action is here: https://www.oregon.gov/ic/Support-and-Resources/Pages/Mistakes.aspx
If you are an employee being treated as an independent contractor, you should know that there are limitations on the time available to file a claim or complaint regarding matters like unpaid wages, benefits, minimum wages, overtime and discrimination. Contact the Bureau of Labor and Industries for additional information.
Whether you are an employee or independent contractor, or intend to classify someone as either as an employer, you should ensure you are very clear about your rights and responsibilities to avoid classification problems and related liabilities in the future. We recommend you consult with an experienced business attorney to assist you.