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Independent Contractors
The protections and obligations of employment laws generally extend to “employees” but not “independent contractors.” While it may be tempting to try to avoid the costs and responsibilities associated with employees by calling them “independent contractors,” the courts and agencies that enforce employment laws do not rely on the label “independent contractor.”
 
The Bureau of Labor and Industries (BOLI), like the U.S. Department of Labor and the courts, uses criteria that have been established through previous court cases to take a close look at the actual realities of the relationship. For purposes of wage and hour law, BOLI uses the “economic realities test” to determine whether there is an employment relationship.
 
This test applies the following six factors to gauge the degree to which a worker is economically dependent upon an alleged employer, with no single factor being determinative:
 
1.                  The degree of control exercised by the alleged employer;
 
2.                  The extent of the relative investments of the worker and the alleged employer;
 
3.                  The degree to which the worker’s opportunity for profit and loss is determined by the alleged employer;
 
4.                  The skill and initiative required in performing the job;
 
5.                  The permanency of the relationship; and
 
6.                  The extent to which the work performed by the worker is an integral part of the alleged employer’s business.
  
 
BOLI utilizes a different test, the “right-to-control test", to determine whether a given worker is an employee or an independent contractor for purposes of civil rights laws. 
 
In determining whether a worker is an independent contractor or an employee for purposes of determining whether an unlawful employment practice has occurred, the courts and BOLI apply these factors:
 
1.                  Direct evidence of the right to, or the exercise of control;
 
2.                  The method of payment;
 
3.                  The furnishing of equipment; and
 
4.                  The right to fire.
 
All of the factors do not need to coincide to determine whether a given worker is an employee. In such cases, the weight or strength of the factors which are in evidence will be considered.
 
Some civil rights statutes protect not only workers, but also job applicants and customers. In those situations, it would not matter whether an individual is an independent contractor or employee.
  
It is also important to remember that other state agencies base their determinations on whether a worker is an independent contractor or an employee on different factors than BOLI. For example, ORS 670.600 is an Oregon statute that defines an "independent contractor" for the Department of Revenue, Employment Department, Construction Contractors Board and Landscape Contractors Board. These agencies require that the person performing the work meet all the criteria of this law in order to be considered an independent contractor.
 
Visit http://www.oregon.gov/IC/pages/index.aspx  for more information about the independent contractor classification criteria applied by other state agencies.
 
FAQs
 
Q: What test is to be applied to determine whether a worker is an employee or an independent contractor?
 
A: The tests applied by the courts and regulatory agencies exist to gauge whether a worker who provides services is operating an independent business. They do this primarily by weighing facts to determine (1) whether the worker is free from direction and control and/or (2) whether the worker is, as a matter of economic reality, independent of the business to which services are being provided. 
 
Q: What happens when an employee is misclassified as an independent contractor?
 
A: There are several potentially expensive costs in misclassifying an employee as an independent contractor. Often, state agencies are required by law to assess back taxes, penalties and interest in cases of misclassification. Employees who were not properly paid wages may also seek back wages, penalty wages and interest through BOLI or the courts. Additional civil penalties may be assessed if minimum wage and overtime claims are involved.
 
Q: How can I be sure my independent contractors won’t be classified as employees?
 
A: Generally, the courts and regulatory agencies will consider workers to be employees unless they meet the definition of an independent contractor. It is critical, therefore, that you compare the reality of your relationship to an independent contractor with the various tests for an independent contractor. BOLI’s tests as well as the criteria of ORS 670.600 are available by way of the links listed above. The IRS also has classification criteria available online at https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee.
 
Q: Does it make a difference if I have a contract and report income under a Form 1099?
 
A: The determination will depend on a consideration of the facts of the entire relationship and not a job title. A contract, even if it correctly captures the intent of the parties involved, will not suffice if the facts of the matter do not show that the worker in question satisfied the legal criteria required of an independent contractor. 
 
 
April 2018
 
 
 
 

 

DISCLAIMER 
Nothing on this website is intended as legal advice.  Any responses to specific questions are based on the facts as we understand them, and not intended to apply to any other situations.  This communication is not an agency order.  If you need legal advice, please consult an attorney.  We attempt to update the information on this website as soon as practicable following changes or developments in the laws and rules affecting Oregon employers, but we make no warranties or representations, express or implied, about whether the information provided is current.  We urge you to check the applicable statutes and administrative rules yourself and to consult with legal counsel prior to taking action that may invoke employee rights or employer responsibilities or omitting to act when required by law to act.
 
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