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Greetings!
Who would have thought that the state of Oregon could make things more complicated than the Feds? Well congratulations to our legislature and the agencies it spawned - they did just that when it comes to determining if a worker is an employee or an independent contractor. |
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STATE OF OREGON MOST CONFUSING
In my April Newsletter I addressed the subject of classifying workers as employees or independent contractors according to IRS requirements. Typically independent contractors do not receive the benefits provided to employees such as healthcare insurance, vacation time and sick leave. From a tax standpoint the benefits of classifying a worker as an independent contractor include not having to withhold and match Social Security and Medicare taxes which must be done for employees, thus adding to the cost savings of engaging independent contractors over employees. In summary the IRS applies a test that involves weighing twenty factors to provide guidance in determining the proper classification of workers.
The state of Oregon has six agencies that are concerned with the classification of workers: (1) the Department of Revenue, (2) the Employment Department, (3) the Construction Contractors Board, (4) the Landscape Contractors Board, (5) the Bureau of Labor and Industries and (6) the Department of Consumer and Business Services' Workers Compensation Division. And, you guessed it. They do not all apply the same test in classifying workers as employees or independent contractors. Similar to the IRS, however, the ramifications of misclassifying employees at the state level can be draconian. The state will recalculate the taxes you should have withheld, and the taxes you should have paid and bill you for them along with interest and penalties. Depending on the number of workers and the number of years involved the total bill could bankrupt your company.
The first four agencies listed above use the same test. Basically an application of the requirements listed in ORS 670.600, which applies to those agencies. The Bureau of Labor and Industries employs the "economic reality test" when addressing wage and hour law and a "right-to-control test" when addressing civil rights law. Finally the Workers' Compensation Division applies a right-to-control test coupled with a nature of the work test to determine proper classification.
So as tempting as it may be to classify workers as independent contractors without rigorous analysis to determine the proper classification, the negative effect of misclassifications can spell the beginning of the end for your company. It is well worth the investment of time and money to get the classifications right in the beginning and then review them periodically to ensure no changes are required. |
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THE SPIRIT OF SUCCESS
"I find the harder I work the more luck I seem to have."
Thomas Jefferson |
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About B2B CFO®
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We are over 200 CFOs with 6,000 years of cumulative experience. No matter what your company's issues or needs are, it is highly likely that we have already successfully handled similar situations and have worked in your industry. No accounting firm or independent CFO can match us. All this experience is available to any business owner engaged with a B2B CFO® Partner.
Contact me for a free Discovery Analysis™.
Please feel free to share this eNewsletter with colleagues and friends, and if you have any questions or would like additional information please contact me via email or at 503-244-3117.
Sincerely,
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