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INDEPENDENT CONTRACTOR STATUS The legal distinction between an independent contractor and an employee is highlighted by federal Internal Revenue Service rulings over the past few years that some individuals who have worked ostensibly as independent contractors were, in fact, common-law employees. In many of these cases, these individuals were paid differently than the employees of the organizations that hired them, yet they performed the same work and were treated essentially the same as ordinary employees. In addition, some of these individuals failed to withhold and pay federal taxes as would be required if they were independent contractors. Once these people were reclassified as employees, the hiring organizations were then found liable for not having withheld the income and payroll taxes for which IRS ruled they were liable. The best way to avoid this situation is not only to agree contractually to an independent contractor arrangement, but ensure that a consultant truly operates as an independent contractor. The IRS provides 20 guidelines for determining whether a service provider is an employee or an independent contractor, but even the IRS itself says that its interpretation of these guidelines is subjective and depends on the specific circumstances. Oregon law, while similar to federal law, is very explicit and also a bit more restrictive in defining independent contractors; thus it is much more helpful in understanding the distinction. In Oregon, an independent contractor: Is free from direction and control over means & manner of providing services. In other words, the client through its agreement with the consultant spells out what services are to be performed and what the results of those services should be. The client, however, does not have control over how these services are performed. Obtains all necessary business registrations and professional occupation licenses. Furnishes his or her own tools and equipment where possible. Has the authority to hire and fire employees to perform services. This refers not necessarily to the hiring of subcontractors to perform client services, but rather to the consultant's ability to hire non-billable employees for secretarial, clerical, and other office services. Is paid upon completion of specific portions of work or annual or periodic retainer. In other words, the consultant does not receive an automatic weekly, biweekly, semimonthly, or monthly paycheck from the client; rather, the consultant is paid based upon the invoices it issues to the client for services performed. If engaged in construction activities, is registered under Oregon Revised Statutes, chapter 701, as required. This stipulation does not apply to information systems consultants. Files federal, state, and local tax returns in the name of the business (if a corporation or partnership) or a personal 1040 Schedule C (if a sole proprietorship) for year in which services are performed. Meets four of the following six criteria regarding its representation to the public that it is an independently established business: Business is conducted outside the individual's home or in a portion set aside specifically for that purpose. The consultant has obtained commercial advertising or business cards as necessary for similar businesses, or a trade association membership. Telephone listing and service have been obtained separate from the individual's residence. Services are performed pursuant only to written contracts. Services are performed for 2 or more clients within a period of one year. Financial responsibility is assumed for services not provided as evidenced by performance bonds, warranties, errors and omissions insurance, or liability insurance. In its professional services agreements, Wright Consulting Services, Inc. agrees to an independent contractor relationship with its clients, and agrees to meet all the legal requirements of an independent contractor, as described above. Return to Top of Page Return to Consulting Engagements Page WCS: Home | Qualifications | About WCS Consulting: Benefits | Services | Engagements Links: IT Resources | Portland | Site Map

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