Contractor may not be better deal.

Byline: ON THE JOB by Bureau of Labor and Industries For The Register-Guard

Question: I own a small, startup business. I need someone to come in and help me, but I can't afford to pay workers' compensation insurance, unemployment insurance, minimum wage, overtime and employer taxes for an employee. I'd rather just give the person a 1099 Form and make him or her an independent contractor. Can I do that?

Answer: It depends. You can contract work out, but be sure that you carefully consider whether both the nature of the work you are contracting to have accomplished, as well your manner of supervising that work, will establish an employer/employee relationship or that of an independent contractor.

The Oregon Bureau of Labor & Industries and many courts use the "economic reality" test to determine whether a person is performing work as an independent contractor or as an employee. The test is based upon Geoffroy Enterprises, Inc., dba Babe's Cabaret and Richard D. Geoffroy. 15 BOLI 148 (1996). Under this test, BOLI will consider five factors:

The degree of control exercised by the alleged employer.

The extent of relative investments of the worker and alleged employer.

The degree to which the worker's opportunity for profit and loss is determined by the alleged employer.

The skill and initiative required in performing the job.

The permanency of the relationship.

In other words, if you are setting specific guidelines and standards, providing frequent supervision, telling the person where to work, when to work, what to do and how to do it, then you are exercising a degree of control that suggests an employment relationship.

On the other hand, if you're just telling the worker what work needs to be done by a specific date and otherwise leaving him or her alone, it's more likely to be a contractor relationship.

If you supply the location where the work is performed, as well as the tools, equipment, supplies and information needed to perform the job, then your investment in the work is significant as compared with that of the worker. That suggests an employment relationship.

If the worker doesn't have money invested in the project (other than his or her "sweat equity" in the form of earned wages), that suggests an employment relationship rather than a business contract. It's also more likely to be an employment relationship if you pay a defined rate to the worker, as opposed to the worker bidding or negotiating the price with you.

If the work itself is primarily unskilled labor and the worker does not have a specialized degree, a contractor's license or other specialized training, that sounds like an employment relationship. If you hired the worker to work solely for your benefit during an extended period of time (i.e., the worker had no other "customers"), that also would suggest an employment relationship.

If you do think you have an independent contractor relationship with your worker, then you may want to ask yourself the following questions:

Does the person really have his or her own business (i.e. they advertise via Yellow Pages, fliers, business cards, newspaper, etc.)?

Have they registered their assumed business name or corporate name (if any) with the Secretary of State Corporation Division?

If the person is a construction or landscape contractor, have I verified they are licensed with the Construction Contractors or Landscape Contractors Board?

Will the person's entire earned income during any prolonged time of providing services for my benefit come exclusively from me, or is the person also performing services for a number of other businesses at the same time?

So remember that while BOLI and the courts will consider the way in which the parties themselves define their relationship, the final determination is a legal one and is not exclusively based on the intention of the parties.

Please note also that while the standards are similar, different agencies define the independent contractor relationship in different ways. For example, the Oregon Department of Revenue, the Employment Department and the Oregon Construction Contractors Board require that employers follow the requirements in ORS 670.600 to hire a contractor. For more information on that state law, see www.oregon.gov/boli.

And if turns out that this person is an employee and not an independent contractor, it means that you may be liable for unpaid wages, workers' compensation insurance, unemployment insurance, other employer taxes, penalties for record keeping violations, penalty wages for failure to pay workers in a timely manner, and civil penalties for failing to pay minimum wage and overtime.

Considering all that, hiring an employee and paying them as such may be a much better bargain.

On The Job is written by the staff of the Oregon Bureau of Labor and Industries. Contact BOLI at [phone], or BOLI, 800 N.E. Oregon St. No. 32, Portland, OR 97232.