New companies often want to classify any new workers as independent contractors instead of employees, in order to limit the company’s costs. Costs attributable to hiring and retaining employees can be quite substantial and include workers’ compensation, unemployment insurance tax, social security tax and withholding and local payroll taxes. Simply calling a worker an independent contractor, even in a signed, written contract, does not, however, mean that the law will recognize the worker as such.
Instead, more often that not, the law will deem the relationship to be between an employer and employee. This is very common mistake that occurs with new companies seeking to limit their costs, and is one of those classic situations where substance (i.e., the underlying law governing how the parties actually deal with each other) prevails over form (i.e., what the parties choose to call their relationship). Misclassification of workers can lead to forced payment of back taxes, penalties, and interest payments, so properly classifying workers is obviously important.
Oregon law is relatively straightforward on the differences between an employee and independent contractor. Though no one factor is determinative, generally, if an employer can direct and control the worker, then it is more likely that the worker will be characterized as an employee. The State of Oregon has a good link on its oregon.gov site here, setting forth some of the additional factors that courts will look to in determining the correct characterization.
In four specific situations, the manner in which workers will be characterized is set forth under an Oregon statute: ORS 670.600. A person performing a service must meet all of the criteria in the statute to be considered an independent contractor for the following purposes:
- Withholding (Department of Revenue);
- Unemployment Insurance (Employment Department);
- Construction Licensing (Construction Contractors Board); and
- Landscape Licensing (Landscape Contractors Board).
To learn more about this issue, visit the State of Oregon’s site here, which has some other helpful links.
