RULES FOR
CONTRACTERS
Clarifying jobs
For years, employers have struggled to comply with the legal
obligations for employees, as opposed to independent
contractors, because of conflicting definitions and enforcement
policies. These definitions and notices have varied among state
agencies. Additionally, Oregon’s test has not been
coupled with the test used by the IRS.
The Oregon statutory rules were revised at the first of the
year, and the revisions are now more closely aligned with the
federal rules. But there is still no guarantee that an
individual will have the same status under both federal and
state law.
In order to be an independent contractor in Oregon, individuals
must meet three of the five following criteria:
-
Maintain a business location.
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Bear the risk of loss related to the business or the
provision of services.
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Provide contracted services for two or more different persons
within a 12-month period, or routinely engaging in business
advertising, solicitation or other marketing efforts
reasonably calculated to obtain new contracts to provide
similar services.
-
Make a significant investment in the business.
-
Have the authority to hire other persons to provide or to
assist in providing the services and having the authority to
fire those persons.
Conversely, the IRS uses a common law test and has
traditionally considered 20 factors in making its
determination. The factors that the IRS considers are set forth
at www.irs.gov.
Employers have an obligation to correctly classify workers.
Both the IRS and the State of Oregon will determine whether an
employment relationship exists. If you classify an employee as
an independent contractor and you have no reasonable basis for
doing so, you may be held liable for employment taxes for that
worker and penalties. In addition to penalties and interest,
the IRS reserves the right to seek civil and criminal sanctions
against the employer. The IRS reported in 2004 that during the
prior three years, 117 people were sentenced to confinement for
criminal violations related to employment taxes.
If you are unable to determine whether a person is an employee
or an independent contractor, you can ask the IRS to make that
determination. IRS Form SS-8, “Determination of Worker
Status for Purposes of Federal Employment Taxes and Income Tax
Withholding,” is available online. Oregon’s
Department of Consumer & Business Services provides a
similar service through its Employer Compliance Unit.
— Peter O.
Watts
Associate, Jordan Schrader
Attorneys
peter.watts@jordanschrader.com
