Small businesses often prefer to treat workers as independent contractors for any number of reasons: avoiding the bother of calculating and paying employee withholdings; escaping the employer’s required expenses for unemployment insurance, workers’ compensation, and other costs; and, freedom from overtime and other wage and hour regulations. In short, treating employees as “independent contractors” can exert a strong attraction on a small business.
Like many other strong temptations, treating an employee as an independent contractor can also lead directly to hell if the employee is not, in fact, an independent contractor. The litany of hellish consequences, both for an employer and for its responsible officers and equity owners, is sobering.
First there are the unpaid withholdings for which not only the employer but also its responsible officers and directors may have joint and several personal liability. Officers, directors, members, managers, partners and limited liability partners are also personally liable, jointly and severally, with their business entity and each other for all claims’ costs, civil penalties and attorney fees if it’s determined that the “ independent contractor” was really an “employee” when they were injured while working. ORS 656.735.
Where an employee, misclassified as an “independent contractor” by their employer, is injured on the job, they are not only free to bring a personal injury action against their employer but the employer loses the benefit of any defense based on the employee’s own contributory negligence. ORS 656.020.
Likewise, individuals responsible for compliance with an employer’s unemployment insurance may be held personally liable, jointly and severally with each other and with their employer, for unemployment benefits and claim costs for an employee misclassified as an independent contractor. ORS 657.516.
Accordingly, whether to treat any individual providing services to a business as an independent contractor is a decision which should be made with caution. A mistake could not only damage your business but drain your personal finances as well.