A few weeks ago, I received a letter from the Oregon Department of Justice. I first saw the notice through the USPS mail email service, which scans and emails images of incoming mail. Seeing that government agency notice made me nervous, and waiting for the letter to actually arrive only added to my anxiety. As someone with power of attorney for many clients, I often receive notices from the IRS, and I always feel a bit anxious wondering what might be inside.

This particular letter was about the new rules for hiring independent contractors and the updated requirements for the child support program. I reached out to several clients who regularly employ independent contractors to see if they were aware of these changes. They either hadn’t received the notice, didn’t know what to do with it, or had set it aside to deal with later.

This type of response to government notices is common, and I felt it was crucial to inform everyone about these important updates and changes. When hiring people, it can be tempting to pay them as independent contractors instead of setting up payroll for various reasons. However, determining whether someone is an employee or an independent contractor is a complex area of law, and the new reporting requirements add another layer of complexity and potential issues.

I believe in following best practices when hiring to ensure compliance and streamline processes for business and rental property owners. One key point is that if you hire someone who qualifies as an independent contractor but fail to issue the required Form 1099, the taxing agency can disallow the deduction for those expenses, even if you have receipts.

This post is not about determining if someone is an independent contractor or an employee or whether a Form 1099 should be issued. Instead, it focuses on providing information about the new reporting requirements and resources to help you comply with them.

I primarily work with contractors in the construction industry, so I’ve tailored this to focus on their needs.

Key Points of Senate Bill 184:  

• Effective Date: January 1, 2024

• Scope: Expands reporting requirements to include independent contractors.

• Who Must Report:

• Employers expecting to engage or reengage independent contractors for more than 20 days.

• Reporting Method:

• Through the Oregon Employer Services Portal.

• Using the New Hire Reporting Form (CSF 01580).

Best Practices for Business Owners or Rental Owners

To stay compliant and protect your business from potential legal and financial pitfalls, consider adopting these best practices:

1. Prefer Hiring businesses:

• Individuals vs business: Always prefer hiring contractors who are structured as a business including LLCs. This helps delineate the business relationship and ensures the contractor is likely to be compliant with licensing and bonding requirements.

2. Verify Credentials  

• Licensed and Bonded: Ensure that all subcontractors are licensed and bonded before hiring.

• Documentation: Request proof of licensing and bonding to keep on file.

3. Proper Documentation  

• IRS Form W-4: For employees, have them fill out IRS Form W-4.

• IRS Form W-9: For independent contractors, have them fill out IRS Form W-9. These forms must be completed before hiring, along with other necessary documents.

• Scope of Service or Letter of Understanding: Clearly outline the services to be performed.

• Independent Contractor Agreement: Have all independent contractors sign an agreement specifying their status and the nature of their work.

4. Worker Classification  

• Employee vs. Independent Contractor: Understand the criteria used by the IRS and the state of Oregon to distinguish between employees and independent contractors.

• Documentation: Keep thorough records to prove the classification of each worker.

Additional Considerations  

• Labor Law Consultation: Worker classification issues can be complex. Consider consulting a labor law attorney to ensure compliance with all relevant laws and regulations.

• Tax Gap and Enforcement: Be aware that taxing agencies are increasing enforcement efforts to close the tax gap.

Recommended Tools  

• Gusto.com: We use and recommend Gusto.com for paying contractors and employees as they handle much of the paperwork and heavy lifting. Gusto makes it easy to issue Form 1099 at the end of the year and track payments throughout the year, simplifying bookkeeping and tax return preparation. As a preferred provider, we pass on discounts to our clients, saving them a lot of money over their lifetime.

Understanding the Complexity  

This topic is complex, with many rules that can be referenced from the following sources:

• Oregon Independent Contractor Resources

• IRS Independent Contractor Guidelines

It's important to note that this post is not meant to communicate whether someone is or isn't an independent contractor. Instead, if you hire someone as an independent contractor, you need to do your due diligence to ensure they actually qualify as an independent contractor rather than an employee. There have been many cases where the government reclassifies someone as an employee after they were treated incorrectly as an independent contractor.

The point of this post is to inform you that if you do hire someone as an independent contractor, you have a responsibility to report them for child support per the attached PDF from the Oregon Child Support Program.

Disclaimer  

This blog post is for educational and entertainment purposes only. It is not intended as legal, tax, or any other type of advice. Consult with a professional for advice specific to your situation.

By following these best practices and staying informed, construction contractors can ensure compliance with Oregon's new reporting laws while protecting their businesses from potential legal and financial issues.

As the first Main Street Certified Tax Advisor in Oregon, I'm thrilled to share my journey and the benefits of this innovative program. My unique background as a Certified Exit Planning Advisor (CEPA), former IRS auditor, and IRS Enrolled Agent positions me to offer unparalleled strategic tax planning for business owners.

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This certification Pro program is a comprehensive learning plate form with over 13 specialized modules covering various tax and legal topics, totaling over 70 classes, and take over 800 questions to pass the course. It is continuously growing with new content. Currently, I'm the only MSCTA in Oregon, but soon there will be dozens, if not hundreds, of certified advisors. I welcome this growth because everyone needs the type of advice, guidance, and support that this program provides. Most accountants don't know how to offer proactive advice that spans the present, retirement, and death.

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