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Common
questions and answers regarding independent contractors:
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Some
of the common characteristics of an independent contractor are:
(not listed in order of importance)
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Furnishes equipment and has control over that equipment. |
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Submits bids - for a job or contract or fixes the price in advance. |
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Chooses the work to accept and has capacity to refuse an assignment. |
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Pay - will relate more to completion of a job. |
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Work is usually intermittent with an expected start and end date. |
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A firing can give rise to suit for breach of contract. |
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Risk of capital - money invested in the work, a potential for loss or profit |
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Employment of others - hires and pays employees or subcontractors. |
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Performs services for more than one person or business; has multiple customers. |
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Economic independence - doesn't depend on any one client or customer for income. |
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Holds oneself out as a contractor - represents to the public that this is a business. |
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Separate phone, business cards, and business advertising. |
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Works under own trade name and not the trade name of person or business contracting the services. |
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Performance affects own goodwill but not the person contracting the services. |
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Owns an existing business which can be sold for more than the price of the assets. |
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Has credit with suppliers, business lenders, and other vendors. |
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Maintains insurance coverage for liability, errors, and omissions. |
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Registered as an assumed business name or other legal business entity. |
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Has a local business license. |
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Files taxes as self-employed. |
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Performs services for customers of his or her choosing. |
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Is not a part or component or anyone else's business. |
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What is control?
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| In a contract of service for pay, control means regulating or directing another's activities, or having
the right or power to direct another's activities. Control arises when conditions for how the job is performed are "narrowly set.". Some examples of "narrowly set" control
conditions may include: |
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Conditions placed on personal appearance or vehicle logos. |
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Limitations outside of a true business need placed on the contractor as
to when the work can be accomplished.
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Approves workers hired or used by the independent contractor. |
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The client provides the training of how to do the work. |
| Sometimes a service needs to be performed during a period when a business is closed or during low
traffic hours for the business (such as in building maintenance or remodeling work), control exists when the contract (written or verbal) specifies when, where and how a service is to be performed
even when there are acceptable alternatives that will produce a satisfactory contracted outcome. When someone contracts for a service but maintains control or sets themselves up to have the right
of control, the relationship is one of employer-employee rather than one of independence. |
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| Frequently Asked Questions |
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What is a 1099 and what does it mean? |
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Does the way a person is paid establish an independent contractor relationship?
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What if I have a signed contract saying the worker is an independent contractor? |
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Are out-of-state workers independent contractors? |
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Do professional/trade licenses make you an independent contractor? |
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Is there an independent contractor license? |
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Can I hire an independent contractor and still maintain control? |
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What are the advantages and disadvantages for an employer to hire
an independent contractor? |
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What are my responsibilities as someone who hired an independent contractor? |
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What does a person need to be an independent contractor? |
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Employer's options for hiring beyond contracting with an independent
contractor or hiring an employee. |
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Do employers pay workers' compensation or unemployment benefits for independent
contractors? |
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Can someone become an independent contractor by simply forming a
business entity, such as a corporation, partnership or limited liability
company? |
What is a 1099 and what does it mean?
A 1099-MSC is the required federal form to report compensation paid to a person not considered an employee for services rendered where the compensation is over $600 in a calendar year. Its
purpose is to inform the IRS of income received by individuals and partnerships in business for themselves.
The 1099-MSC indicates that the individual or partnership was treated as a non-employee. It does not indicate the determination of any government agency that the person performing services is
actually an independent contractor under the law. An employee receives a federal form W-2.
IRS frequently asked questions on this subject indicate that if you think you were, or are, an employee and you would like the IRS to issue a
determination, you may submit Form SS-8, Determination of worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. |
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Does the way a person is paid establish an independent contractor relationship?
The method of payment is not the single determining factor. An independent contractor must be free from direction and control over the means and manner of accomplishing the work, regardless
of the form of payment. Although a bid and contract can be based on the number of hours worked, an independent contractor's pay will relate more to the completion of the job, service or project. |
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What if I have a signed contract saying the worker is an independent contractor?
A signed contract does not establish that a person performing services is an independent contractor. A contract is an agreement between parties. It does not have to be in writing. If there
are no control issues written into the contract, the individual may still be an employee as determined by the actual control or direction. The facts of the situation establish the reality of the
relationship. |
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Are out-of-state workers independent contractors?
For worker's compensation purposes, the employment relationship determines the worker/independent contractor status based on who has the right to direct and control the worker. A state boundary
in itself does not establish independence.
For a discussion of where workers are reported for unemployment insurance see Employment Department Informational flyer #9 Multi-State
employment. |
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Do professional/trade licenses make you an independent contractor?
No. A professional or trade license represents the legally based right to perform services in a specific trade or profession. It does not guarantee that the person is an independent contractor.
If there is direct evidence of direction and control, or the right to direct and control the services performed, then it does not matter as to workers' compensation law whether or not the individual
has a professional license. There are exemptions under some laws for licensed professionals; these must be addressed with each agency enforcing that law. |
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Is there an independent contractor license?
Not in Oregon. There is also no assurance that all agencies enforcing the laws within Oregon can establish the determination of independence with the same result. Within workers' compensation
law however, if an individual is licensed with the Construction or Landscape Contractors Boards, there is a conclusive presumption of independence when the licensed independent contractor is involved
in activities subject to and working under that license. |
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Can I hire an independent contractor and still maintain control?
You can not hire an independent contractor and treat them as an employee. If you do, then the individual is an employee. An independent contractor is free from direction and control. You may
specify the expected results, but the manner and method of obtaining those results is not in your control if the person you hire is an independent contractor. |
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What are the advantages and disadvantages for an employer to hire an independent contractor?
When a person or business enters into a contract with an independent contractor, there is no responsibility for providing any of the benefits of an employer/employee relationship. In some
cases, this means little or no paperwork in the overall "employment responsibilities" when work is contracted out. |
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Advantages to an employer for hiring an independent contractor include: |
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You are not responsible for providing workers' compensation to independent contractors. |
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You do not pay unemployment insurance tax for independent contractors. |
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You do not pay social security tax for independent contractors. |
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You do not withhold income taxes or pay local payroll taxes for
independent contractors. |
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Bookkeeping may be simpler since payments are based on a contracted amount without reporting requirements other than
form1099 which must be sent to the IRS in certain cases. There would be no need to keep timesheets, hour logs, or salary-based logs for independent contractors. |
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Within the limits and as outlined in the contract, you have freedom to dismiss a contractor without employment repercussions. |
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You do not need to provide tools or equipment. |
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You do not need to provide a place for the contractor to work. |
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Disadvantages for the employer hiring an independent contractor include: |
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You cannot provide close supervision of the work performed because the independent contractor chooses
the manner and method for accomplishing the work. |
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You will not have control over who actually performs the service since an independent contractor can
hire and dismiss their own labor as they choose. |
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If the expected quality of the outcome is unclear in the contract, or the completion date is not specified,
you might have to pay for substandard work. The requirements of the contract dictate who must cure defects. |
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What are my responsibilities as someone who hired an independent contractor?
Before entering into a contract, you are responsible for ensuring the person you hired qualifies as an independent contractor under the law.
If you contract with an independent contractor, you are responsible for ensuring you do not direct and control the means and manner of providing the service for which you contracted. You may specify
the design, quality of the service and the timing of completion of the service. Hold up your end of the contract requirements and let the contractor fulfill their part of the contract. Accountability
should be built into the contract. |
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What does a person need to be an independent contractor?
At minimum, a person is independent if they enter into a contract to perform a service and that person providing the service is free from direction and control. The person letting the contract
establishes the desired outcome and may do occasional progress checking. The independent contractor will of course need a willing client to enter into a contract for the service. The independent
contractor must assure proper licenses are obtained to perform the service.
The Secretary of State Business
Referral Center offers help for business start up and requirements of particular businesses. |
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Employer's
options for hiring beyond contracting with an independent contractor or hiring an employee.
An employer can obtain workers through an employment service or agency as temporary or workers that are leased. Temporary workers are actually employees of the employment
service and the temp provider carries all employer responsibilities; direction of the workers comes from who hired the labor from the agency. A permanent work force leased through a Professional
Employment Organization (PEO), often call a worker-leasing company, is actually a co-employment relationship, but the PEO provides the workers' compensation coverage for all workers as well as
the human resource services and reporting. Either way, the control of the worker rests primarily with whoever hired the services of the labor. |
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Do employers pay workers' compensation or unemployment benefits for independent contractors?
If the person engaged is truly an independent contractor, then the person is not eligible for unemployment, workers' compensation or other benefits of being an employee. Independent contractors
are responsible for their own benefits, and they must personally ensure their federal, state and other taxes are timely paid, including estimated tax payments being made when needed. |
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Can someone become an independent contractor by simply forming a business entity,
such as a corporation, partnership or limited liability company?
No. The creation of a business entity does not, by itself, establish that the entity provides services as an
independent contractor. The entity must still meet all of the requirements under the law to be considered independent contractors. |
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| Additional Resources |
| What is an independent contractor? |
| For workers: Common questions and answers |
| Guidelines for specific industries |
| Independent Contractor vs employee: The cost of getting it wrong! |
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Oregon Independent Contractors
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