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    Roger McComas   

For workers: independent contractor information

Some of the common characteristics of an independent contractor are (not listed in order of importance):

Furnishes equipment and has control over that equipment.
Submits bids for a job or contract or fixes the price in advance.
Chooses to accept and has capacity to refuse an assignment or work.
Pay will relate more to completion of a job.
Work is usually intermittent with an expected start and end date.
A firing can give rise to suit for breach of contract.
Risk of capital - money invested in the work, a potential for loss or profit.
Employment of others - hires and pays employees or subcontractors.
Performs services for more than one person or business; has multiple customers.
Economic independence - doesn't depend on any one client or customer for income.
Holds oneself out as a contractor - represents to the public that this is a business.
Separate phone, business cards, and business advertising.
Works under own trade name and not the trade name of person or business contracting the services.
Performance affects own goodwill but not the person contracting the services.
Owns an existing business which can be sold for more than the price of the assets.
Has credit with suppliers, business lenders, and other vendors.
Maintains insurance coverage for liability, errors, and omissions.
Registered as an assumed business name or other legal business entity.
Has a local business license.
Files taxes as self-employed.
Performs services for customers of his or her choosing.
Is not a part or component or anyone else's business.

What is control?
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:
  Conditions placed on personal appearance or vehicle logos.
  Limitations outside of a true business need placed on the contractor as to when the work can be accomplished.
  Approves workers hired or used by the independent contractor.
  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 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.

Frequently Asked Questions

What is a 1099-MSC and what does it mean?
Does the way a person is paid establish an independent contractor relationship?
My current employer wants me to become an independent contractor. Is this allowed?
Do professional/trade licenses make you an independent contractor?
Is there an independent contractor license?
What if I am required to sign a contract?
What if I call myself an independent contractor?
What are the advantages and disadvantages to being an independent contractor?
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-MSC 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 more than $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.
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.
My current employer wants me to become an independent contractor. Is this allowed?
It is only allowed if you meet the requirements of being an independent contractor under the law. If the nature of your employment stays the same, then you are still an employee. If the employer requires you to become an independent contractor as a condition of continued employment, you have in effect been terminated as an employee and should check on your eligibility for unemployment benefits.
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.
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.
What if I am required to sign a contract?
A signed contract does not establish a person performing services as an independent contractor. Unless you meet the requirements of an independent contractor under the law, you may be considered an employee.
What if I call myself an independent contractor?
Regardless of what you call yourself, you must meet the requirements of an independent contract under the law.
  Advantages to being an independent contractor include:
  No mandatory income tax withholding. However, you would likely need to file quarterly estimated tax payments to avoid penalties for underpayment of estimated tax.
  You would be free to perform the service in any manner you wish subject only to a contracted result.
  You are free to hire or contract with someone else to perform the service.
  You may be eligible for certain business tax deductions, including medical expenses.
  Disadvantages to being an independent contractor include:
  You are personally liable and responsible for all tax obligations, including self employment and Social Security taxes.
  You are responsible for providing 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, worker's 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 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 an independent contractor.

Below is a general comparison of an independent contractor versus an employee.
Independent contractor
Free from direction and control Means and manner of work are controlled by employer
Does tasks in own way Does tasks the employer's way
Has necessary skills and training to complete job Trained by employer to perform job
Has an assumed business name Works under the employer's assumed business name
Has a business location (even if only a space set aside in a residence where administrative work is performed) Works at employer's or employer designated business location
Performs services for own multiple clients Works for an employer and may serve that employer's customers
Sets own hours Works hours set by employer
Determines own price for contracted services (some negotiation may be involved) Generally accepts wage, salary, or commission determined by the employer (some negotiation may be involved)
Not eligible for employee benefits Covered by minimum wage, overtime, safety, unemployment, and workers' comp
Directly affected by business profit or loss Not directly impacted by employer's profit or loss
Furnishes equipment and tools used to complete job Employer provides and controls equipment and tools
Arranges for materials and supplies needed to do job Employer purchases materials and supplies
Personally liable for errors and/or accidents Employer liable for employee errors and/or accidents
Files self-employment taxes.Receives a Form 1099-MISC Does not file self-employment taxes.Receives a Form W-2 from employer.
Can hire and fire workers Is hired and/or fired by employer
Must legally complete each contract May quit working for an employer at any time

If you have questions about this webpage, please contact Roger McComas, 503.947.7665.