The risks of incorrect treatment "employee" As an independent contractor

Small businesses often prefer to treat employees as independent contractors for a number of reasons: avoiding the hassle of calculating and paying employee withholding; avoiding 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 be a powerful appeal to a small business.

Like many other strong temptations, treating an employee as an independent contractor can lead straight to hell when the employee is not. The litany of hellish consequences, both for an employer and for its managers and shareholders, is sobering.

First, there are the unpaid withholding taxes for which not only the employer but also its responsible officers and directors can be jointly and severally personally liable. Officers, directors, members, managers, associates and limited partners shall also be personally, jointly and severally liable with their business entity and each other for all damages, civil penalties and attorneys’ fees if it is determined that the “independent contractor” was in fact an “employee”, if they were injured at work. ORS 656.735.

If a misclassified worker is injured at work, not only is he free to bring a personal injury claim against his employer, but the employer loses any defense based on the worker’s own complicity. ORS 656.020.

Likewise, individuals responsible for complying with an employer’s unemployment insurance may be held personally liable, jointly and severally with each other and their employer, for unemployment benefits and claims costs for an employee wrongly classified as an independent contractor. ORS 657.516.

Accordingly, determining whether an individual providing services to a company should be treated as an independent contractor is a decision that should be made with caution. A mistake can not only harm your business, but also take a toll on your personal finances.

© 2013-12-12 Lawrence B. Hunt of Hunt & Associates, PC All rights reserved.