Employee vs. Independent Contractor: Avoiding Bugs when Hiring
One of the most common pitfalls for new nonprofits is mischaracterizing employees as independent contractors. Classifying workers correctly is a legal requirement, not a choice. If your nonprofit hires people to do work, you must determine whether they are employees or independent contractors (or true volunteers!) under both federal and Oregon law. The federal and state governments provide tests to help assess whether the role you are seeking to fill in your organization should be an employee, independent contractor, or volunteer. It can be tempting to label workers as independent contractors rather than employees, especially in smaller or new organizations, due to the lower burden on the organization, i.e., no payroll, taxes, less paperwork, handbooks, benefits etc. However, the organization must follow state and federal laws and regulations to avoid any negative consequences upon the organization if labor laws are found to not be in compliance. Why Classification Matters Employees must be: Paid at least minimum wage Covered by workers’ comp and unemployment insurance Reported to the IRS and Oregon agencies Protected by workplace laws (anti-discrimination, sick leave, etc.) Independent contractors: Are not employees Must pay their own taxes and self-employment insurance Are not eligible for employee benefits Are not
