Avoiding payroll taxes and Oregon and federal regulatory requirements by staffing independent contractors instead of employees is a common tactic for startup companies. Of course, simply calling your staff independent contractors doesn’t make them any less of an employee depending on the facts.
If you answer too many of these questions with a yes, you’ve got yourself some employees!
- Do you control the means and manner of the work?
- Do you directly supervise your workers?
- Do workers perform their jobs on site at your business?
- Do your workers only work for you?
- Do you set the wages and hours for your workers?
- Do you provide your workers with materials and supplies for the job?
- Do you retain the right to terminate your workers at will with no contract describing the work to be done?
Although no one factor is determinative, if you retain the right to direct and control the work being performed, you’re probably an employer and your worker is an employee. The Oregon statute defining independent contractors is ORS 670.600.
2 responses so far ↓
Johanna Hoffmann // December 18, 2009 at 1:08 am |
This is a terrible mistake many start ups and small firms make – in Canada as well.
Usually it comes to a head when ‘contract’ employees get ‘laid off’ and they bee-line it to the unemployment office. When they realize they aren’t eligible for unemployment they sue for wrongful dismissal. Legal papers arrive at about the same time as the Labour Board is knocking on the door.
Fixing the problem is very expensive and entails severance pay, legal fees, remittance of the funds that should have been withheld + penalties and interest.
Scott Phillips // December 18, 2009 at 1:14 am |
I agree. Far better to classify one’s employees or non-employees correctly from the get go. Unfortunately, it’s an all too common pitfall for small business owners trying to keep a startup afloat during the early, non-profitable times. Payroll withholdings, unemployment insurance, etc. are a lot cheaper than lawsuits and IRS penalties!