Many businesses prefer to hire independent contractors instead of employees. Independent contractors are often experts in their field and offer flexibility to a business. However, working with independent contractors presents challenges as well. Misclassifying a worker as an independent contractor when they are, by law, an employee can have unpleasant consequences. Being aware of potential pitfalls will protect your business.
Calling an Employee a “Contractor” Does Not Change the Fact They are an Employee
Some business owners think they are smart in avoiding payroll taxes by calling someone who legally qualifies as an employee a “contractor”, but they may wind up paying for more in legal fees, penalties, and damages than they think they are saving if they misclassify an employee as an independent contractor.
Many states, including Oregon, apply a multifactor test to determine whether a worker is an employee or independent contractor. Where an employer exercise significant control over the “manner and means” of a person’s work, the worker is more likely to be considered an employee. Some of the factors courts consider when determining whether an employer exercises control over the “manner and means” of work are:
- Whether the employer exercises control over the worker’s schedule;
- Whether the worker may work for other company;
- Whether the employment is project-based or more consistent; and
- Whether the employee provides their own equipment for work.
The more freedom a worker has, the more likely they are to be an independent contractor. Contractors have control over the equipment and tools they use to perform their job. They are free to complete their scope of work using whatever tools they want. They can also use these same tools with other clients.
Similarly, companies do not have the power to dictate a contractor’s schedule. Establishing a clear schedule for contractors may inadvertently create an employer-to-employer relationship. Instead, companies should schedule periodic check-in calls and assignment deadlines. By doing so, the company can create a professional relationship with your contractors without inadvertently treating them like employees.
Independent contractors, unlike your W-2 employees, often work with several employers simultaneously. They may choose to work solely for your business at their discretion, but they can always take on more clients at any time and without notice. If a worker works only for your company, a court is likely to determine the worker is an employee, not a contractor.
Be Sure to Document Changing Scopes of Work
While some companies hire contractors to work on a long-term basis, most contractors are hired to work on a project-specific scope of work. When a contractor has proven themselves valuable and reliable, that company will rehire them for the next project. A company hiring a contractor should make sure to issue a new written scope of work to a contractor for each project. Creating new scopes of work for each project helps establish that a worker’s work with a company is based on individual projects, rather than consistent employment. Companies should also ensure that they maintain up to date billing records for each contractor.
Are you considering working with or hiring an independent contractor and want to learn more? We can help determine the best solution for your business and ensure a successful partnership. Call us at 503-446-6261 or contact us online, today.