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Frequently Asked Questions
Answers to your questions about independent contractors


 
What is "direction and control?" 
 
What is an "independently established business?" 
 
What is the difference between a Form W-2 and a Form 1099-MISC - and what does it mean? 
 
Does the way I get paid tell me if I am an independent contractor?
 
My current employer wants me to become an independent contractor.  Is this OK? 
 
Does having a professional or trade license make me an independent contractor? 
 
Is there an independent contractor license? 
 
What if I am required to sign a contract to work stating I am an independent contractor? 
 
What if I call myself an independent contractor? 
 
What are the pros and cons of being an independent contractor? 
 
Does registering a business name (such as a corporation, partnership, or limited liability company) make me an independent contractor? 
 


What is "direction and control?"

“Direction and Control” is one of the key criteria used by all state agencies to determine whether you are an independent contractor or an employee (for a complete list, check out our state agency criteria chart). 
                                               
If the business that hires you has the right to direct or control how you perform your work, that is a significant indication that you are an employee and not an independent contractor. 
 
“Direction and control” can include factors like:
  • Being told how to dress or act on the job.
  • Being told you can only work on the job at specific times.
  • Having to get approval for your decision to hire or fire other workers.
  • Having to undergo specific training by the business that hires you. 
 
Although not all state agencies use the same criteria for determining whether a worker is an independent contractor, all of them base their determinations (in part) on whether a worker is subject to direction and control. 
 
Feel free to check out the legal definition of “direction and control” used by agencies enforcing ORS 670.600 (Oregon Department of Revenue, Employment Department, Construction Contractors Board, and Landscape Contractors Board).
 
Note: To be considered an independent contractor under ORS 670.600, you must meet all the criteria of that law (not just the requirement concerning direction and control). 
 
Keep in mind that certain agencies must follow different worker classification criteria.  Additional agency-specific information on worker classification is available from Workers' Compensation Division and Bureau of Labor and Industries.


What is an "independently established business?"

An “independently established business” is one of the criteria used by state agencies to determine whether you are an independent contractor or an employee (for a complete list, check out our state agency criteria chart). 
 
To be considered an independent contractor under ORS 670.600, you must (among other things) maintain an “independently established business.” 
 
An “independently established business” is defined as meeting any three of the following five requirements:
 
(1) The person maintains a business location:
(A) That is separate from the business or work location of the person for whom the services are provided; or
(B) That is in a portion of the person’s residence and that portion is used primarily for the business.
(2) The person bears the risk of loss related to the business or the provision of services as shown by factors such as:
(A) The person enters into fixed-price contracts;
(B) The person is required to correct defective work;
(C) The person warrants the services provided; or
(D) The person negotiates indemnification agreements or purchases liability insurance, performance bonds or errors and omissions insurance.
(3) The person provides contracted services for two or more different persons within a 12-month period, or the person routinely engages in business advertising, solicitation or other marketing efforts reasonably calculated to obtain new contracts to provide similar services.
 
(4) The person makes a significant investment in the business, through means such as:
(A) Purchasing tools or equipment necessary to provide the services;
(B) Paying for the premises or facilities where the services are provided; or
(C) Paying for licenses, certificates or specialized training required to provide the services.
(5) The person has the authority to hire other persons to provide or to assist in providing the services and has the authority to fire those persons.
 
The requirement to maintain an independently established business does not apply if the person files a Schedule F as part of an income tax return and the person provides farm labor or farm services that are reportable on Schedule C of an income tax return.
 
Note: To be considered an independent contractor under ORS 670.600, you must meet all the criteria of that law (not just the requirement concerning an “independently established business”). 
 
Keep in mind that certain agencies must follow different worker classification criteria.  Additional agency-specific information on worker classification is available from Workers' Compensation Division and Bureau of Labor and Industries.
 

What is the difference between a Form W-2 and a Form 1099-MISC - and what does it mean?
 

According to the Internal Revenue Service, “both of these forms are called information returns.
 
The Form W-2 is used by employers to:
  • Report wages, tips and other compensation paid to an employee.
  • To report the employee's income tax and Social Security taxes withheld and any advanced earned income credit payments.
  • To report wage information to the employee, and the Social Security Administration. The Social Security Administration shares the information with the Internal Revenue Service.
A Form 1099-MISC is:
  • Generally, used to report payments made in the course of a trade or business to a person who is not an employee or to an unincorporated business.
  • Required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or compensation are paid.
  • Provided by the payer to the IRS and the person or business that received the payment.”
The common misconception is that your classification as either an employee or as an independent contractor is somehow determined by which information return form you receive at the end of the year
 
A classification determination is always made on the basis of whether the worker meets the specific legal criteria for an independent contractor under Oregon law.

For more information on how the IRS handles its classifications determinations, check out their website.  If you think you might be an independent contractor and you want the IRS to decide, you can request a determination by way of Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
 

Does the way I get paid tell me if I am an independent contractor?

It can help.  But you should know that the deciding factor in determining whether you are an independent contractor is whether you meet the requirements set out for an independent contractor in state law.  (You can check out our summary of those requirements in chart form or page through a more complete discussion here.)
 
With that said, the way you are paid can be an indicator of whether you meet those requirements.  For example, ORS 670.600 requires (among other things) that independent contractors maintain an “independently established business,” and one of the potential indicators of such a business is that the worker enters into “fixed price contracts.”  If you are paid by way of fixed price contracts (as opposed to, say, an hourly rate of wage) you are meeting at least one of the requirements to be considered an independent contractor under that law. 
 
Note: To be considered an independent contractor under ORS 670.600, you must meet all the criteria of that law (not just one, such as the requirement concerning an “independently established business”). 
 
Keep in mind that certain agencies must follow different worker classification criteria.  Additional agency-specific information on worker classification is available from Workers' Compensation Division and Bureau of Labor and Industries.
 

My current employer wants me to become an independent contractor.  Is this OK?

Although it can be tempting for your employer to reclassify you as an independent contractor, doing so requires several changes to your current relationship and presents some significant risks for both you and your employer. 
 
State enforcement agencies (and the courts) apply specific legal criteria to determine whether a worker meets the requirements to be considered an independent contractor.  If those requirements are not met, that worker is classified as an employee, regardless of how the relationship is characterized on paper.  (You can check out a summary of the state agencies’ criteria in chart form or click here for a more complete discussion.)
 
In general, a bona fide independent contractor must be free from “direction and control” as to how the work is performed and is almost always required to maintain an “independently established business.”   If your employer starts to treat you like an independent contractor, but does not give up control over how you do your work (or you do not run a business of your own), you are still an employee--you have just been misclassified. 
 
As a misclassified employee, you should know that you run the risk of losing out on lawful benefits and protections for employees like unemployment insurance, income tax withholding, workers compensation coverage for on-the-job injuries, minimum wage and overtime protections as well as other workplace protections under civil rights and wage and hour law.  Unless the classification determination is revisited, misclassified employees will also forfeit any benefits offered to properly classified employees such as sick leave, vacation pay and retirement benefits.
 

I have a professional license.  Does this mean I am an independent contractor?
 
No.  A professional or trade license represents the legal right to perform services in a given trade or profession. It does not indicate, however, that the licensee has also met the requirements set out for an independent contractor in state law.
 
As an example, ORS 670.600 requires that independent contractors be responsible for obtaining any necessary licenses or certificates to provide services, however, under that law a bona fide independent contractor must also maintain an “independently established business” and perform his or her work free from the “direction and control” of another.  So if a cosmetologist, for example, is not free from the direction and control of the establishment where he or she provides cosmetology services, that cosmetologist would not be an independent contractor, despite the fact that he or she is required to obtain a license from the Oregon Health Licensing Agency’s Board of Cosmetology.
 
Keep in mind that certain agencies must follow different worker classification criteria.  Additional agency-specific information on worker classification is available from Workers' Compensation Division and Bureau of Labor and Industries.
 

Is there an independent contractor license?
 
No, Oregon does not issue an independent contractor license.  Although various trades and professional occupations may require that you obtain a license, holding such a license does not make you an independent contractor.  To be considered an independent contractor, you must meet the requirements of Oregon law.  
 
For additional information on Oregon licenses, certifications, permits, and registrations, be sure to check out the Oregon License Directory online.
 

What if I sign a contract that says I am an independent contractor?

State enforcement agencies (and the courts) apply specific legal criteria to determine whether a worker meets the requirements to be considered an independent contractor.  If those requirements are not met, that worker is classified as an employee, regardless of how the relationship is characterized on paper.  (You can check out a summary of the state agencies’ criteria in chart form or click here for a more complete discussion.)
 

What happens if I call myself an independent contractor?

That depends on whether or not you actually are an independent contractor.
                              
State enforcement agencies (and the courts) apply specific legal criteria to determine whether a worker meets the requirements to be considered an independent contractor.  If those requirements are not met, a worker is classified as an employee, regardless of how the relationship is characterized by the parties involved.  (You can check out a summary of the state agencies’ criteria in chart form or click here for a more complete discussion.)
 
If you misrepresent yourself as an independent contractor, you may be exposing your employer to potential liability for unpaid payroll and employment taxes, workers benefit fund contributions and other penalties.
 
If you misrepresent yourself as an independent contractor, you should also know that you run the risk of losing out on lawful benefits and protections for employees like unemployment insurance, income tax withholding, workers compensation coverage for on-the-job injuries, minimum wage and overtime protections as well as other workplace protections under civil rights and wage and hour law.  Unless the classification determination is revisited, you will also forfeit any benefits offered to properly classified employees such as sick leave, vacation pay and retirement benefits.
 
If you intend to operate an independently established business, you should be aware that running a business requires taking on a number of legal obligations that are not applicable to employees.  For basic information on how to start a business in Oregon, check out the Oregon Secretary of State’s guide “How to start a business in Oregon.”   If you anticipate hiring employees of your own, then you will also want to review the “Employer’s Guide for Doing Business in Oregon,” for information on laws, regulations and taxation requirements affecting businesses with employees.  Both Guides are available online.
 

What are the pros and cons of being an independent contractor?
 
Pros include:
  • You do not have to file income tax withholding. But, you would probably need to file quarterly estimated tax payments to avoid penalties for underpaying estimated tax.
  • You are free to do the work any way you choose as long as you fulfill the contract.
  • You have the right to hire or contract with someone else to perform the service.
  • You may be eligible for certain business tax deductions, including medical expenses.
 Cons include:
  • You are personally liable and responsible for all tax debts, including self-employment and Social Security taxes.
  • You must provide the equipment, supplies, licenses, and any other materials needed to complete your work.
  • You may be civilly responsible for any damage you cause in performing the service.
  • You are not covered by unemployment insurance, workers' compensation benefits, or protected by Oregon's Wage Security laws.
  • If you are not paid, you will need to seek legal remedies.
  • You may be sued for breach of contract if you don't perform the service or produce the product under the terms of the contract.

Does registering a business name (such as a corporation, partnership, or limited liability company) make me an independent contractor?

No.  State enforcement agencies (and the courts) require that a worker meet specific legal criteria to be considered an independent contractor.  If you do not meet those requirements, a business name registration will not make you an independent contractor.  (You can check out a summary of the state agencies’ criteria in chart form or click here for a more complete discussion.)
 
In fact, the law enforced by the Department of Revenue, Employment Department, Construction Contractors Board and Landscape Contractors Board states, “The creation or use of a business entity, such as a corporation or a limited liability company, by an individual for the purpose of providing services does not, by itself, establish that the individual provides services as an independent contractor.”  ORS 670.600(5)(a).