| Common Questions For Workers |
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Common questions and answers about independent contractors.
What is direction and control?
In a contract of service for pay, direction and control means regulating or directing another's activities, or having the right or power to direct another's activities. Control happens when the client sets conditions about how the worker conducts himself or does the work. This is called "narrowly set" conditions. Some examples of "narrowly set" conditions are:
- Telling the worker how to dress or act on the job.
- Saying the worker can only work on the job when the client is there.
- Approving workers hired by an independent contractor.
- Saying the worker must be trained by the client.
Sometimes work needs to be done when a business is closed or during off-hours. The employer has control when they can tell the worker when, where, and how to do the job, even when there might be other ways to do the work. When an employer has the right to tell the worker how to do the job, the worker is an employee.
What is an independently established business?
By Oregon law ORS 670.600, you are in an independently established business if you meet three out of the five standards below:
- Maintain a business location that is:
- Separate from the business or work location of the person getting the service; or
- In a part of your home that is used mainly for business.
- Bear the risk of loss, For example, you:
- Enter into fixed price contracts;
- Correct poor work;
- Warrant your service; or
- Negotiate indemnification agreements or buy liability insurance, performance bonds, or errors-and-omissions insurance.
- Provide services on contract for two or more people within 12 months, or advertise or promote the business to get new contracts so you can do the same work for others.
- Invest in the business by:
- Buying tools or equipment you need to provide the services;
- Paying for the premises or facilities where the services are provided; or
- Paying for licenses, certificates, or special training.
- Have the right to hire and fire others.
- If you file tax returns with a Schedule F and also do agricultural work that you report on a Schedule C, you do not have to meet the independently established business requirements.
Note: ORS 670.600 applies only to the Oregon Department of Revenue, Employment Department, Construction Contractors Board, and Landscape Contractors Board. These agencies require that the person performing the work must meet all the criteria of that law.
For information about workers' compensation and Oregon labor law, please contact the Workers' Compensation Division and Bureau of Labor and Industries.
What is a 1099-MISC and what does it mean?
A 1099-MISC is the federal form employers use to report what they pay to a person who is not an employee. Employers use this form when the pay is over $600 in a calendar year. The form tells the IRS about the income paid to people or partnerships in business for themselves.
The 1099-MISC shows that the person or partnership was treated as a non-employee or an independent contractor. It does not say that the person actually is an independent contractor. In contrast, an employee receives a federal form W-2.
If you think you are or were an employee and you want the to IRS to decide, click here: Am I an employee?. You will need to fill out Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
Does the way a person is paid tell if they are an independent contractor?
The way you are paid is not the only factor. But, it might help you know whether you are under someone's direction and control.
My current employer wants me to become an independent contractor. Is this OK?
Your boss cannot make you be an independent contractor. You must meet the rules of the law to be an independent contractor. If your employer starts to treat you like an independent contractor, but everything else about your work stays the same, then you are still an employee.
I have a professional license. Does this mean I am an independent contractor?
There is no specific license that creates an independent contractor under Oregon law ORS 670.600. A professional or trade license represents the legal right to perform services in a trade or profession. It does not guarantee that the person is an independent contractor.
Is there an independent contractor license?
Not in Oregon. If you are licensed with the Construction Contractors Board or the Landscape Contractors Board, you are presumed by Workers Compensation Division to be an independent contractor if you are involved in activities subject to and working under that license.
What if I am required to sign a contract that says I am an independent contractor?
Just because you sign a contract does not make you an independent contractor. You must meet the rules of Oregon law ORS 670.600. If you do not, you are an employee.
What if I call myself an independent contractor?
To be an independent contractor and not an employee, you must meet the requirements of Oregon law ORS 670.600.
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.
Can I become an independent contractor just by forming a business entity, such as a corporation, partnership, or limited liability company?
No.
ORS 670.600 applies only to the Oregon Department of Revenue, Employment Department, Construction Contractors Board, and Landscape Contractors Board. These agencies require that the person performing the work must meet all the criteria of that law.
For information about workers' compensation and Oregon labor law, please contact the Workers' Compensation Division and Bureau of Labor and Industries.
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