This commentary is in reference to content found on the State of Oregon’s website. Please visit their site for more information.
It is not uncommon to hear procurement or HR personnel claim their independent contractors are compliant because they are a business entity and signed documentation indicating they are an independent contractor. However, nothing could be further from the truth. Take, for example, the State of Oregon, which explicitly states that “[t]he creation or use of a business entity, such as a corporation or a limited liability company, by an individual for the purpose of providing services does not, by itself, establish that the individual provides services as an independent contractor.”
Further, currently sitting in a congressional committee in the U.S. House of Representatives is the Payroll Fraud Prevention Act of 2015 which defines “non-employees” as those who provide services through a corporation or LLC if they are required to create or maintain such entities as a “condition for the provision of such labor or services.” In other words, if the Payroll Fraud Prevention Act ever were to become law in its current form, then an independent contractor would automatically, by operation of law, be deemed misclassified if you required that contractor to form an entity as a condition of providing services!
Moral of the story: look to the substance of the relationship, not the form.