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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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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. |
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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! |
| Oregon
Independent Contractors
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