Employee or independent contractor?
The rights of a worker depend on whether that person is an employee or an independent contractor.
Generally, a worker who provides services for pay is considered an employee by the courts and state regulatory agencies, unless that worker meets the criteria required of an “independent contractor” operating their own business.
A worker’s status as either an employee or independent contractor is determined by the reality of the work relationship, not a label or title given to a worker.
The courts have developed two tests to gauge the reality of that work relationship. One for wage and hour claims and another for civil rights disputes.[1]
Economic realities test
Under wage and hour law, workers who provide services by way of their own businesses are generally independent contractors, whereas workers who are economically dependent on a business are employees. Oregon’s wage and hour regulations broadly define “employ” as “to suffer or permit to work.” When evaluating whether a person has performed work as an employee or an independent contractor, BOLI applies the “economic realities” test used by courts to determine employee status under the federal Fair Labor Standards Act. Several factors make up the “economic realities” test, which weighs the degree to which workers are economically dependent upon businesses to which they provide services.
It is important to note that:
- No single factor in the economic realities test is determinative for establishing that a worker is an independent contractor or an employee. Rather, the factors are considered in their totality and in relation to one another with the objective of determining, on the whole, whether a worker is economically dependent on a business to which services are rendered.
- The economic realities of a worker’s relationship with an employer or business and not a label given to that relationship determine whether the worker is providing services as an employee or an independent contractor.
- An agreement between a worker and an employer that labels the worker as an independent contractor is not determinative when evaluating the worker’s status.
Economic realities test factors[2]
Right to control test
Under the “right-to-control test” applied by the Bureau of Labor and Industries Civil Rights Division, four factors are weighed to determine whether an employer has the “right to control” the work of an individual. Where an employer clearly has the “right to control” the work of an individual under this test, that individual is deemed an employee rather than an independent contractor for purposes of civil rights law. To put the use of this test into context, courts would consider whether an employment relationship exists to determine whether the alleged employer is liable for the discrimination by the worker against a third party, or if the alleged employer is liable to the worker under civil rights law for discrimination against the worker.
The factors of the “right-to-control" test are:
- Direct evidence of the right to, or the exercise of, control
- The method of payment
- The furnishing of equipment and
- The right to fire.
It is not necessary that all factors 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.
Although not part of the official test, the following questions may help to illustrate whether a worker is performing work as an employee or an independent contractor:
Direct evidence of the right to, or the exercise of, control
- Who sets the hours of work?
- Who is responsible for quality control?
- Does the worker have other customers?
- Who determined the rate of pay? Was it negotiated?
- Who determines how the work gets performed?
The method of payment
- Do clients pay the individual worker directly or do they pay the business employing that worker?
- Does the worker set the rate of payment or does the business employing that worker set the rate?
The furnishing of equipment
- Does the worker supply their own tools?
- Does the worker purchase materials necessary to do the job?
- Has the worker invested in bonds/insurance/advertising?
The right to fire
- How long has the job lasted? Is an ending date contemplated (upon completion of the project)?
- Is the contract (if any) subject to periodic review or automatic renewal?
- Does the contract (if any) address termination of employment or provide consequences for either party terminating the relationship?
Additional information
Please visit the Oregon Independent Contractors website for more information.
Contact us directly via email:
whd.screener@boli.oregon.gov or telephone: 971-245-3844 x171 (Ore. Relay TTY: 711). Se habla español. Employers are welcome to reach out to Employer Assistance at 971-361-8400 or email
employer.assistance@boli.oregon.gov.
Additional guidance is available in our handbook for employers,
Employee Classification & Wage & Hour Exemptions.
Interested in periodic updates on employment law and BOLI training opportunities? Submit your email address from the "Subscribe for Updates" box at the bottom of this page.
[1] While BOLI follows court precedent in applying the “economic realities” for purposes of wage and hour law and the “right-to-control” test for purposes of civil rights law, note that other state agencies 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.
[2] The examples, which are taken from the U.S. Department of Labor’s Administrator’s Interpretation No. 2015-1 (July 15, 2015), are intended to illustrate the application of the test factors. Modifying the facts of an example may alter the analysis. As mentioned above, no single factor is determinative.