The protections and obligations of employment laws generally extend to “employees” but not “independent contractors.” While it is 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, use 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 reality test
” to determine whether there is an employment relationship.
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 law. 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 will make their own determination on whether a worker is an independent contractor or an employee. 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 Construction Board. These agencies require that the person performing the work meet all the criteria of that law in order to be considered an independent contractor.
You can visit www.oregonindependentcontractors.com
for more information about the independent contractor classification criteria applied by other state agencies.
Q: So what is an independent contractor, really?
A: To cut to the chase, 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 to misclassifying an employee. 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 though 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.
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, not a 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.
Q: One of my employees has a side business. Can I have him provide services as an independent contractor so long as the duties he performs as an employee are different?
A: Not according to the U.S. Department of Labor. In an opinion letter dated July 5, 2000, DOL was asked whether an employee who worked as a graphic designer could also perform work as an independent contractor for the same employer. Although the duties performed by the employee in each capacity would be distinct, DOL opined that the worker would be an employee and not an independent contractor in regard to all work performed. DOL also stated that, “It has long been the position of the Wage and Hour Division that it is unrealistic to assume that an employment and “independent contractor relationship” may exist concurrently between the same parties in the same workweek.”
Q: I want to hire someone to remodel my house. Can I safely assume that this person will be an independent contractor and not an employee?
A: Not necessarily. Although construction is an industry that often uses the work of independent contractors, this is not always so. A recent BOLI case illustrates that if enough of the factors of the “economic reality” test are met, an employment relationship may exist. See In the Matter of Laura M. Jaap, (April 8, 2009) Case No. 32-08, where the Commissioner found that the Respondent exercised significant control, provided tools and materials, and there was an aspect of permanency to the relationship.
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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